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.”