With-profits products aim to provide investors with much needed stability, especially during times of market volatility. And even though this year’s tables do not show significant increases in business, the numbers are still rising. Many companies seem to have left recession fears behind.
Table 1 shows the realistic assets, cost and liabilities of life offices compared with the results from our surveys in 2014 and 2013. Last year, we saw two name changes within the industry as Scottish Equitable came fully under the Aegon umbrella and Co-operative Banking Group joined Royal London (CIS). This year has seen Engage Mutual merge with Family Investments to become OneFamily in April 2015. This year has also seen several firms not participating, such as Clerical Medical, Equitable Life, Aviva Life and Pensions UK and Legal & General. Guardian has also chosen again not to participate in a Money Management survey. For all the companies that did not take part, we collected the data available in the company’s Prudential Regulation Authority (PRA) regulatory returns.
Last year’s tables showed one-third of companies seeing an increase in realistic assets less any subsidies and future profits, and there is a similar trend this year with 13 companies seeing a rise in realistic assets. While some saw a significant increase, for others it was not staggering.
For instance, Aegon UK went from £5.6bn last year to £6.3bn this year while Scottish Friendly only saw an increase to £494.5m from £493m last year. Some companies also saw a fall. For instance, Phoenix Life saw its realistic assets drop from £21.8bn last year to £17.3bn this year.
“We did quite a large reassurance deal in 2014 where we reassured a large part of annuities in payment, as with all the with-profits funds, to an external reinsurer to manage the run-off, explains Andrew Burke of Phoenix Life Limited. “That would have accounted for that chunk of decrease because we obviously transferred some liabilities out to a third-party reinsurer.”
The Table also shows data such as guarantee, option and smoothing costs, but more significantly it shows total realistic excess available. This is calculated by subtracting the risk capital margin (RCM) from its net assets. From this it is also possible to deduce the RCM cover percentage, as seen in the final column of the Table.
A few companies have seen changes this year, according to the Table. For instance, if we look at the RCM cover figures, Legal & General has seen an increase from 7.3 per cent in 2014 to 13.9 per cent this year. Similarly, Scottish Friendly saw an increase from 10.9 per cent last year to 14.2 per cent this year.
Table 1 also shows a rise in the realistic free asset ratio (FAR). This is calculated by deducting
a firm’s total liabilities from its total assets, dividing the result by the liabilities and multiplying by 100 to produce a percentage. Table A shows the top 10 with-profits life offices in the survey, according to FAR. According to the table, Teachers Assurance has the highest realistic FAR at 63.4 per cent, followed by NFU Mutual at 23.8 per cent.