If Steve Groves, chief executive of Partnership Assurance had known last year what he knows now, he might not have gone ahead with the company’s flotation.
On the day of the Budget in March, George Osborne announced pensions liberation, freeing people from the compulsion to buy an annuity.
At a stroke, it kyboshed a large part of the company’s business model; 80 per cent of the business is based on pension annuities. The result was a 61 per cent plunge in the company’s share price, barely nine months after a glowing stockmarket debut.
He said: “It did make for an interesting day. If we had known at flotation about pension liberation, I don’t think we would have done it. We would have said there’s too much disruption in the market to give people a very clear steer about what’s going on in the short term.
“I can see exactly what our role is, but in this disrupted market it’s very difficult to guide shareholders from quarter to quarter.
“Nobody knew this was coming; based on the information we had at the time we did it, we made the right decision.”
Nonetheless, the news has had a dramatic impact on the company’s bottom line. New business premiums in the retirement sector were down by almost a half to £334m in the six months to the end of June, and operating profits were down 44 per cent to £33m.
The consequence is that annuities now take up about 60 per cent.
Mr Groves said: “We’ve seen the market settle down to 50 per cent of the previous level. What we’re seeing is a significant level of deferral; the rules have not yet been formalised. Customers are waiting to see what their options are before they press ahead. You’re seeing a significant number of over-65s in the workplace who will wait to see what happens.”
To be fair, he said, the impact has been felt right across the market, although he has made some tough decisions close to home with redundancies. But, perhaps not surprisingly, he is bullish about the future.
He said: “We remain very confident. Before the Budget, we helped people to ‘decumulate’ a pot of money; after the Budget, we will help people take their pot of money and spread that over their lifetime.
“The retirement market is growing very quickly. People forget that the amount of money owned by people coming up to retirement is growing 15 per cent a year. We have seen a 30 per cent drop in retirement, which is two years’ growth.”
In fact, he claims that Partnership is still in an ideal position because of the way the market might evolve over the next few years.
The sector has until now been polarised, Mr Groves said, between those who take all of the risk themselves, by opting for drawdown, and those who leave the insurance company to take that risk with an annuity.
He said: “Over time, that polarisation will go; we won’t talk about annuities and drawdown, we will talk about who’s taking how much risk.
“I see huge opportunities for people who can underwrite longevity. I see us moving into that space and into contracts that allow customers to transfer some of the longevity risk while keeping investment exposure and keeping the fund when they die.”
Mr Groves also expects that people with medical conditions will still come to Partnership to obtain a better deal. He said: “If you look at the majority of our clients, they retire with ill health, they’re getting 6.5 per cent a year guaranteed for life.”
Mr Groves is an actuary by training, having worked at Norwich Union Life, Britannic and Swiss Re. He joined Partnership in 2005, starting out as finance director, following a management buyout, and then becoming managing director in 2006. Then in 2008, the company was bought out by private equity firm Cinven, which remained a majority shareholder when the company floated.
Those early days as chief executive were tough, said Mr Groves, because there was not much money around.
He said: “There was a real balance between controlling the speed at which you grow the company to make sure you have enough money to pay the expenses. You have to be careful and make sure you do everything right.”
He is a strong believer in his actuarial training, firstly because the world is becoming more complex and bound by regulations, and secondly because of the intellectual discipline it brings.
He said: “It gives you a rigour about analysing problems, you work much less on gut feel – a lot of rigour about what’s changed and what’s different.”
Other parts of the business may be smaller, but are doing better than the annuity side – the defined benefit buyout business is growing rapidly – rising by 200 per cent to £37m in the first half of the year. And, of course, Partnership is the biggest supplier of long-term care products in the UK.
But with annuities such a large part of the company, and going through so much change, it is likely to be occupying the largest part of his time.
He said: “I look at 2008 (the time of the buyout) as the most challenging time. It will be interesting to see if I say that about the same period in 2013/2014.”
Melanie Tringham is features editor of Financial Adviser
Career ladder
2005- to present Partnership Assurance, first chief finance officer, then managing director and chief executive
2003 - 2005 Swiss Re Life and Health Senior actuary
2000 - 2003 Britannic Retirement Solutions, executive head of business development
1999 - 2000 GE Life, Product Manager
1996 - 1999 Norwich Union Life Investment Actuary
