‘Premier league’ of UK life companies foreseen, post-consolidation

A massive consolidation in the UK’s life company sector over the next five years will create a ‘premier league’ of pension providers, according to a new report.

The report, which was unveiled today by the Pensions Institute of London’s Cass Business School, highlights massive changes taking place in the UK’s life insurance industry that it says have resulted in the need for “an urgent cross-industry debate on the future of the life company, and its business model in relation to the changing needs of the private sector pensions market”.

“We recommend that the debate has full cross-party support at policy level, and has full regulatory support across the FCA, the PRA and the TPR,” it adds, referring to the UK’s Financial Conduct Authority, Prudential Regulatory Authority and the Pension Regulator.

A central feature of the report, which is 95 pages long and entitled The Meaning of Life, is a warning that defined contribution workplace pension scheme assets are expected to double by 2020 to £550bn, yet will be controlled by what the report calls a “premier league” of between five and seven major providers – half the current number of major providers in the market of about 14.9 firms.

This consolidation, the report stresses, will need to be managed carefully by the industry and its regulators, “in order to avoid market instability”, as this “premier league” of providers “will be dominated by large-scale multi-trust [defined contribution pension] schemes, as ‘mid-tier’ life and pensions companies and smaller master trusts, which lack the scale and deep pockets to succeed in a market characterised by scale and a cut-throat pricing war”, fall away.

“Assets held by relegated providers may be bought by the successful life companies in the auto-enrolment market and by the consolidators – a life-company category that is expected to grow in terms of assets under management and the number of participants,” the report continues.

“Several major UK life companies – including those with overseas parents – are expected to sell-up and exit, unless they secure premier-league status.

“[These] exits will be due to the increasing cost of regulatory compliance, including capital requirements, and the potential growth of overseas markets, for example, in Europe, the US and the Asia-Pacific region.”

Among the major UK life companies are such well-known names as Legal & General, Standard Life and Prudential.

News of the publication of the Pension Institute’s report coincided with the announcement, out of Singapore, that the Switzerland-based insurance giant Zurich was closing its Singapore life business to new clients from the first of December.

Singapore has recently increased its regulation of and transparency requirements for financial products sold in the city-state, and in an interview with a Singaporean newspaper, Zurich’s Asia Pacific life business chief executive, Colin Morgan, was quoted as saying the decision had been necessary “under the current and foreseeable circumstances”.

Earlier this year, Canada Life, which is owned by Canada-based Great-West Lifeco, said it would buy the Dublin-based international subsidiary of Legal & General, in another example of the consolidation highlighted in the Pensions Institute’s report.

Long-term savings products

Among the main products covered by the report are a range of long-term savings and investment vehicles as well as workplace pension products that the major UK insurers first began selling some decades ago, to supplement their life insurance, health insurance and general insurance operations. These, the report notes, have been particularly hard-hit by recent reforms, including pension freedoms set out unexpectedly by the UK government in 2015, as well as the introduction of new regulations governing the commission and charging models used by the industry.

Other key points contained in the report:

  • The most successful life companies are those that are restructuring to compete with the diverse range of challenger-providers that have called into question the traditional model of the UK life companies
  • The market will be further disrupted if the UK Government announces intentions to introduce an ISA-type tax module for pensions in the March 2016 Budget
  • A “fragmented” approach by the Government and FCA to admittedly “essential” pension industry reforms has resulted in “confusing overlaps and inconsistencies” and is not coherent as a strategy over the long-term

To read and download the report, click here.

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