Product manufacture in the UK has not been financially attractive for traditional insurers for some time, and back books were known to start fizzling out from around 2018 from some time back.
High-margin annuity business has covered this issue up for some time but was never a long-term answer.
Product manufacture is all about jam tomorrow, returns take many years to come through, so analysts and shareholders want to see growth across a number metrics.
There is enormous pressure to keep growing profits but much of this has been achieve by cost control in recent years. I doubt Aviva were the first or only business Friends talked to.
Big mergers give a story to tell the City around growth and opportunity that makes the jam tomorrow story sound that bit more plausible. As with pension freedoms, it will be many years (and several chief executives) later before we find out if it works.
Following the recently announced merger between Just Retirement and Partnerships, you have to ask will there be more? The answer is yes, for the same reasons, and especially where private equity is involved. Private equity investors typically have an exit in mind at outset.
That means an event such as sale or flotation within five to 10 years. It is not necessarily a bad thing as if the market does not attract private equity innovation, then new business will dry up, but it is as well to recognise their end game.
Phil Young is managing director of Threesixty