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Prudential to pull out of equity release

Prudential is to pull out of the equity release sector in the first quarter of 2010.

Money Marketing can reveal that the insurer will stop writing new lifetime mortgage business early next year, although it will continue to service its 14,000 existing customers.

Of the 140 people who work on its lifetime mortgage proposition, 100 jobs could be at risk of redundancy, although the insurer hopes to redeploy as many of these staff as possible in other parts of the business.

Prudential is the latest in a long line of equity release providers to pull out of the market, leaving Aviva, Just Retirement, and LV= as the only substantial players still writing new business in the sector.

The move follows Northern Rock, Saffron Building Society, Coventry Building Society and Retirement Plus who have all suspended new lending over recent months, while In Retirement Services went into administration earlier in the year.

Prudential’s share of the lifetime mortgage market was around 12 per cent in 2009 and 23 per cent in 2008. It has a total loan book of around £1bn.

The insurer says the decision to withdraw is a result of the upfront capital which is required to write this type of business, which Prudential believes would be better used for other product areas.

Prudential says when it launched into the lifetime sector in 2004, it had originally intended to securitise its mortgage book but this has not been possible due to the state of the market.

Managing director of retail life and pensions Barry O’Dwyer says he does not expect the securitisation market to return fully for another five years.

He says: “We can confirm that we propose to close our lifetime mortgage operation to new business in the first quarter of 2010. Our existing lifetime mortgage customers will not be affected by this decision and we will continue to manage our high quality book of business as usual.

“The focus for Prudential UK remains to compete selectively in areas of the retirement savings and income markets where we can generate attractive returns on capital employed. However, we are now placing an even greater emphasis on our disciplined use of capital and cash and playing to the core strengths of our business.”

“For lifetime mortgages, a significant cash expense is incurred up front in acquiring new business and the payback period on capital employed is long. We have concluded that this is not sustainable and that we can deploy cash and capital more effectively across other parts of our business.”

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Comments

There are 12 comments at the moment, we would love to hear your opinion too.

  1. It is a pity Prudential may be taking this closure route. There are clients who have no inheritors and who were looking forward to using a stroong well repected insurance/investment company to help them add to their pensions for a better retirement. I would have preferred an action to develope a pension based fund that could own up to 100% of a residential property similar to a reversion scheme, but where the company gains to enjoy the final growth on last to die. Long term it would be but substantial none the less. Hopefully Prudential may still consider this?

  2. This is an absolute hammer blow for the market coming on the back of all the other pull outs.
    This just goes to show how the liquidity factor of the markets has been so badly damaged

  3. Very dissapointing as although I have the LTM qualification and while I rarely need to reccomend an LTM (once a year maybe) and have never actually used the Pru for this, their contract is one of the better ones still on the market.
    To Derek Vivien – Close Brothers did something similar to what you are referring to (I don’t know if they still do), but it was a reversion scheme if I remember rightly.

  4. This really is a big blow. So much for their boast that their annuity book can continue to fund this.

    Not sure how confident I am that they will honour drawdown facilities in place

  5. Althoughh we have seen a few Equity Release lenders pull out of this market recently, I really find this news extremely worrying.We have seen Godiva, Saffron, Newcastle, Northern Rock disappear, but when an annuity backed company decides to pull the plug, is this the beginning of the end for this specialised sector?As a specialist firm,this sector is slowly increasing, but we need the choice of plans to offer clients the best options.A sad day!

  6. Very disappointing news that even Prudential cannot continue to offer Lifetime Mortgages. They have a good product, a household name that clients trust and I have always found their administration and support to be good.

    Who will be next and will there be a Lifetime Mortgage market in the New Year?

  7. IT IS NOT A HAMMER BLOW
    As an independent adviser, I can say that this is not a major problem. The only people using Pru regularly are the ill-informed or commission driven.

    The only lose to the market from an advisors point of view has been Godiva, and even then only as it was weighted in favour of the client. As the no early repayment charges made it ideal for the client who was looking to down size once the housing market had recovered.

    This only shows that Godiva did not understand the market they had entered.
    Prudential on the other hand thought they should get all the business because they are the mighty Pru.

  8. As a member of staff in the LTM cust serv team we are all deeply shocked at this anouncement as absolutely no one saw it coming.

  9. I also work in the CS area. What a great place to work- A dedicated team of individuals who give 150% to providing a world class service to the customer. In my estimation from what I see and hear this will be a sad loss to the industry and might have a serious knock on affect for prudential.

  10. As a member off staff within the LTM department i am truley gobsmacked at this decision! and also very dissapointed!. I did not expect this to happen, LTM was going forward and moving up. We were expecting the volumes of work to rise even moreso next year.I totally dissagree with the decision the Rob has made and i’m sure 99% of the other members of staff within the department will agree. Very dissapointing.

  11. This is just the start. They placed so much resource in selling PruFund, perhaps they need to cover the loss when the guarantees start to bite? I can’t wait to hear what moonbeams my account manager will throw at me in the wake of this. They are the grand masters of peeing on your shoes and telling you it is raining

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