Mergers, legacy books and the future of life cos

Life companies must find ways to stay ahead as the legacy book heyday wanes

History always has a nasty habit of catching up with us.

For all the talk of vertical integration, businesses of scale and forward-looking wealth management, mergers can often be just as much about dealing with the problems of the past as positioning a company for the future.

The process of pushing companies together can sometimes feel to onlookers like a toddler repeatedly pushing a square-shaped toy into a round hole. It just will not fit, but they carry on regardless.

There are some mergers and acquisitions that seem like a natural fit, while others take the market by surprise. The news that Standard Life and Scottish Widows are eyeing a tie-up does not make sense to everyone, especially when Standard Life is embroiled is another merger entirely with Aberdeen Asset Management.

Yet as with much of the financial services sector, it is all intertwined.

Standard Life and Scottish Widows appear at first glance as companies that have taken very different paths in life, but Scottish Widows’ parent Lloyds Banking Group is potentially the glue that would hold any future deal together.

The battle for survival: Could a merger transform Standard Life and Scottish Widows?

This is because when Lloyds sold Scottish Widows Investment Partnership to Aberdeen, none of the parties envisaged a parallel universe where Standard Life would be managing Scottish Widows’ funds. A merger with Scottish Widows could tie up the investment bow nicely.

But back to the history lesson. The long-term savings industry of the past was dominated by the life office giants, who were all about pooling risk, with-profits, and unit-linked insurance products.

The process of pushing companies together can sometimes feel to onlookers like a toddler repeatedly pushing a square-shaped toy into a round hole. It just will not fit, but they carry on regardless.

That heyday is long gone. With the advent of platforms and the evolution of providers, what was once a healthy business of ever-rising customer numbers has turned into something else – legacy business. And legacy books, while they still generate some profit, will not continue to do so forever.

This is a problem providers are all too alive to. Money Marketing has heard Standard Life has explored selling off its legacy book in the past, even though the sale did not ultimately proceed.

Combining legacy businesses while stripping out costs will ensure the status quo is maintained. Et voila – a big, brand new, old business.

Some companies put their focus on expansion and growth, while some take a more ‘slash and burn’ approach to cutting costs. This is true both inside and out of financial services. But mergers or not, a model driven by cost reduction is not the way to better outcomes, not for advisers and not for clients. That is one lesson worth remembering.

Natalie Holt is editor of Money Marketing. Follow her on Twitter here

Recommended

Standard-Life-Building-700x450.jpg
2

Standard Life challenged over potential Scottish Widows deal

Analysts have questioned the motivation behind Standard Life’s potential acquisition of Scottish Widows They argue time might be wrong for Standard Life to engage in another deal, as reports suggest talks with Scottish Widows will kick off this week just as Standard Life and Aberdeen shareholders have officially approved their £11bn tie-up. Lloyds Banking Group, […]

Special edition TechTalk: Changing Opportunities

Read the special edition TechTalk magazine: Changing Opportunities. Scottish Widows’ Financial Planning team revisits the biggest industry changes, while Patrick Leavey from the Group Public Affairs division explores changes to the legislative landscape. For this and more, visit the new Scottish Widows change hub

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment