We recently learnt that the With Profits market (measured by technical provisions) exceeded £274 billion at the end of 2016. Given the considerable size of in-force business we believe it is prudent for advisers to continue to keep abreast of developments in the With Profits sector. Indeed, With Profits related advice for in-force clients should be just as robust as it is for any new business.
Acknowledging how important the evaluation of existing With Profits funds is for financial advisers, we asked AKG to provide comment on the With Profits market. AKG has been publishing its annual series of UK Life Office With Profits Reports for over 20 years, so we felt they would be well positioned provide an update on the With Profits market.
Below you will find a summary of key developments and statistics from AKG’s 2017 Reports.
1. The size of the With Profits market is considerable
The amount of With Profits business in-force remains considerable; With Profits technical provisions totalling over £274 billion at the end of 2016.
» The With Profits technical provisions of the top 10 companies accounted for over 90% of the total With Profits market in 2016.
» Top 5 providers for in-force With Profits products were Prudential Assurance Company Ltd, Aviva Life & Pensions UK Ltd, Royal London Mutual Insurance Society Ltd, Standard Life Assurance Ltd and Scottish Widows Ltd.
2. 90% of the market sits with five companies
Measured by premiums earned (net), the top 5 companies accounted for 90% of the market in 2016. Prudential is the dominant force here with over 70% of the market in premiums earned itself.
The Top 5 providers for With Profits premiums earned were Prudential Assurance Company Ltd, Standard Life Assurance Ltd, Liverpool Victoria Friendly Society Ltd, Royal London Mutual Insurance Society Ltd and Aviva Life & Pensions UK Ltd.
Interestingly, only nine firms showed positive net flows in respect of their 2016 With Profits business. The Top 3 for With Profits net flows were Prudential Assurance Company Ltd, Liverpool Victoria Friendly Society Ltd and Wesleyan Assurance Society.
3. M&A activity continues to impact the broader market
M&A activities in recent times involving companies operating With Profits books of business have included the completion of deals between Phoenix Group and Abbey Life, as well as Phoenix Group and AXA Wealth.
There are also several deals in the pipeline that are yet to complete, including the Life Company Consolidation Group and Reliance Mutual, plus Swiss Re (ReAssure) and Legal & General.
4. Solvency II reporting has had an impact
The Solvency II reporting framework is now in place and hence there is different material and metrics available by which UK Life Office With Profits funds can be analysed/assessed.
The main change being that PRA returns have been replaced with Solvency and Financial Condition Reports (SFCRs). The AKG team reports that many things have been lost, including historical pay-out data, and a few things gained, in terms of With Profits information available for review.
5. The Regulator has launched a With Profits Sector Review
Currently there is a With Profits Sector Review in progress. In June 2017, the Financial Conduct Authority (FCA) announced that it had issued an information request to the majority of With Profits firms to help them carry out a multi-firm review of the sector.
“One of our priorities is firms’ treatment of existing customers. This review into the fair treatment of with-profits customers, included in our 2017/2018 Business Plan, is a key part of this programme of work.”
“The last full review that focused on with-profits business was in 2010. The forthcoming review into the fair treatment of with-profits customers will allow us to understand further the range of practices that are now being adopted by firms.”
The review was scheduled to commence in Q4 2017 or Q1 2018. We recommend that Advisers keep abreast of the developments with this FCA review.
6. The Pensions Dashboard initiative should put pressure on providers
The Pensions Dashboard project continues to evolve, with DWP now taking responsibility for its development. Ultimately a successful dashboard would be able to provide comprehensive pensions data for customers. Hence this might put pressure on providers of historic and legacy funds/products to facilitate online valuations and digital feeds in future.
Should the arrival of a dashboard provide further fuel to transfer activity there will also be defensive considerations for With Profits providers.
About AKG UK Life Office With Profits Reports
» Who are the reports designed for and why? – These reports are designed to assist advisers, providers and other market participants in assessing the relative merits of specific With Profits funds. The aim is to provide comprehensive, structured and consistent information, accompanied by AKG’s key analytical assessments of With Profits financial strength, future performance and transparency.
» What funds and firms are covered? – The reports contain analysis and assessments of 185 sub-funds within 72 funds within 26 firms that will be active in the UK market at the end of December 2017 (from 25 different groups). The reports cover providers whose With Profits funds exceed £110m, supplemented by smaller companies and friendly societies operating in the intermediary market.
» What is included in the reports? – Each individual report provides information on the structure and operation of a provider’s With Profits fund(s). It also highlights the various risks borne by With Profits policyholders and concludes with AKG’s long established Ratings for With Profits Financial Strength, With Profits Future Performance, and With Profits Transparency. Several comparative industry-wide tables are also included, covering a range of key metrics. This year, for the first time, the tables feature industry-wide data from the SFCRs that have been introduced under the new Solvency II regulatory regime.
This article was created for the DISCUS website based on an article by Matt Ward, Communications Director, AKG Financial Analytics. To find out more visit their site here ›