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Life business spinning on magic roundabout

The buoyant new business results being paraded by life offices are “absolutely meaningless” and reflect the “magic mushroom roundabout” of high commission, low persistency rates and destroyed capital plaguing the industry, says independent consultant Ned Cazalet.

Product providers benefited from an A-Day sales surge, with Norwich Union seeing a 43 per cent increase in UK life and pension sales in the first six months of this year and Friends Provident and Aegon posting growth of 39 per cent and 55 per cent respectively.

But Cazalet says that companies do not disclose figures on lost business so the results are meaningless and unlikely to indicate much net new money entering the industry.

He says the increased pension lapse rate announced this week by NU indicates the lack of profitable business being written.

Cazalet says: “The firms are patting themselves on the back but the figures are absolutely meaningless. No one is reporting net figures and telling us how much business has been lost.

“I am afraid this is the same magic mushroom roundabout where money is going from one provider to another. There is an awful lot of capital destruction going on and very little new business.”

Earlier this month, Scottish Life and Scottish Widows, which both posted more modest growth in pension sales, ruled themselves out of a price war and criticised competitors for writing business that they claim is unlikely to be truly profitable.

Aegon spokeswoman Lesley McPherson says: “We are happy with our persistency calculations and our growth has nothing to do with changes to our charging structure. We were one of the first firms to introduce commission cuts. Our focus is on our profits and the value of underlying new business which is up by 61 per cent.”

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