InvestmentsJun 23 2015

New-ish business trends

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      CPD
      Approx.40min
      New-ish business trends

      The UK economy has been through a lot over the past 12 months. From persistently low interest rates, to controversy over its future in Europe, to uncertainty surrounding the general election, it has been a volatile year for the British business community.

      With-profits business does not have a good track record in dealing with increased volatility and economic pessimism. With-profits products were popular in the 1990s when investors had more resources to put into these types of investments and providers had the capital reserves to pay annual bonuses and keep up the “smoothing” process. However, failure to cope with a prolonged bear market saw the products suffer a fall from grace, from which they have never recovered.

      New business trends within the with-profits industry continue to paint a mixed picture, albeit a more steady one since the economy has been on an upward trend. While, despite recent volatility, the overall health of the UK economy continues to improve, certain areas of with-profits business have benefited more than others.

      One area of the industry that has received a great deal of attention over the 12 months since the last survey is pensions. The pension freedoms came into effect in April this year, too late for the period covered in our survey, but the importance of saving for retirement was endlessly discussed in the lead up to the changes. This increased focus likely led consumers to think more about their financial future, but had negligible impact on new pensions business results.

      During the worst of the financial crisis, new life business took the biggest hit, likely because of investors having to prioritise where to put their money. Life business is often one of the first areas to see a cut as it is a more long-term investment. The state of this part of the with-profits business is still not strong, but not as poor as it once was. Of the providers surveyed, only two reported a fall in new life business, when in last year’s survey the majority reported negative changes.

      Under and overachievers

      Interest in with-profits investments is certainly not what it used to be. Every year the number of providers that participate in this survey becomes fewer for two main reasons – providers are no longer taking on new with-profits business, and mergers and acquisitions have led a number to join forces.

      Phoenix is one provider that ticks both these boxes. Britannic Assurance, London Life, NPI, Pearl Assurance, Scottish Mutual, and Scottish Provident have all come under the Phoenix umbrella in recent years, and the company now holds a staggering amount of with-profits legacy business.

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