Standard Life’s insurance arm was then sold to Phoenix Group for £3.2bn in February this year, the Scottish firm lamenting the capital-intensive nature of such business. It says the deal will enable it to free up resources for other areas, chiefly asset management.
Others have gone down the same path. In March, Prudential sold its annuity business for £12bn to Rothesay Life – a firm that had previously purchased annuity books from both Aegon and Zurich. In the process, Prudential divided its business into two; M&G Prudential focuses on the UK and Europe, and Prudential now operates out of Africa, Asia and the US.
Mike Wells, chief executive of Prudential, said at the time: “This will enable [the firm] to play a greater role in developing the savings and retirement markets in the UK and Europe.” He added that the capital raised from the annuity sale was key to supporting to deal.
Barry O’Dwyer, head of pensions and savings business at Standard Life Aberdeen, says of the structural changes: “We have seen customers move away from risk-sharing products like annuities into investment-based products like income drawdown. The industry has responded to that and there is a greater focus on asset management as a consequence,”
The shift to asset management does not bode well for advisers, according to Anthony Morrow, chief executive at online advice firm Evestor.
“It’s all about ‘how do we get closer to the customer’ and ‘how do we get the customer’s assets?’”
He says the answer to these questions is to buy up distribution channels: “At the moment so much business is [still] intermediated. It’s probably a big worry for product providers because they can suddenly find they are no longer flavour of the month.”
Still life
Mr O’Dwyer argues the traditional life company still has its place. “Pooling of risk through products like annuities and equity release still makes sense for lots of people,” he says.
As this implies, although some life companies no longer see the merits in annuity business, the view is not unanimous.
L&G is another firm that has shed some of its legacy book, via the sale of its Mature Savings division – largely comprising of with-profits – to Swiss Re. However, the company does not plan to do away with all traditions, having announced plans to retain focus on annuities and insurance products in addition to asset management.
Size is a crucial factor here, according to Mr Morrow. He says offering products such as annuities and with-profits is now only viable for those with sufficient scale and resource, such as L&G and Aviva.
