“The only firms that are bothered about making a profit as a platform are those where it’s their [sole] business.”
While the changes at insurance giants have become increasingly rapid, they have also coincided with the curtain coming down on the UK’s oldest mutual life insurer. And in this case, the shift has been a long time coming.
Intermediaries will not need reminding that Equitable Life, founded in 1762, came close to collapse in 2000 in a scandal from which the sector never truly recovered. Compensation to consumers exceeded £1bn, but the company itself managed to survive. Eighteen years later, it has agreed a deal to be purchased by Life Company Consolidation Group for £1.8bn.
The deal will benefit Equitable’s 400,000 policyholders in one aspect, as the majority are expected to receive a share of the sale proceeds. But while customers will profit from the sale by seeing bonus levels jump from 35 per cent to up to 70 per cent on their with-profits holdings, the with-profits policies themselves – many with guarantees attached – will be relinquished and replaced with a unit-linked approach that is typically more sensitive to market movements.
Discussing the deal, Equitable chief executive Chris Wiscarson says the EU Solvency II Directive’s capital rules have made the traditional life insurer model of returning excess capital to shareholders difficult to satisfy.
Indeed, Mr O’Dwyer says the cumulative impact of Solvency II, RDR and Brexit has forced the hand of life companies: “It should come as little surprise that the sector has been undergoing so much change, as companies respond to what this means for customers and clients.”
More significant than the catalysts are the potential implications. The FT has reported that analysts believe the Equitable deal could see other insurers ask customers to swap with-profits funds for unit-linked products.
Alternatives
The bonuses and smooth returns associated with with-profits funds have not always proved so reliable themselves. Such policies, once the darling of the insurance-savings landscape, have seen their popularity gradually wane over the past decade and beyond.
“While with-profits, in theory, appeared an easy sell to the layman, the often appalling management of that money, combined with the opaque and high charges, deemed many such plans unworthy,” notes Mr Ariyawansa.
As a result, most savers have already become accustomed to subjecting their savings to the whims of the market, for better or for worse. Yet the evidence of the past five years is that an updated take on the original with-profits concept still has a role to play for both advisers and investors. Guarantees may no longer be in rich supply, but the product has other features that prove attractive, particularly with the more cautious investor.
“For all its faults, no one has been able to devise a truly viable alternative to a well-managed with-profits fund,” Mr Ellis says.
