Shares in most UK life assurers have fallen over the year mainly as a result of the battering taken by most financial stocks in the wake of the sub-prime lending crisis and subsequent credit crunch. However, in terms of profits most of the life players have performed reasonably well, leaving some relatively cheap valuations for those willing to sit out the prevailing poor market sentiment.
However, there has not been a consistent vein running through the performance of each life assurer. For example, the UK's largest life company, Aviva, has had a pretty miserable time in the UK, where it operates as Norwich Union, while the purchase of AmerUS has transformed its US business. Meanwhile, Friends Provident spent much of the year in an abortive attempt to combine with Resolution, which resulted in the resignation of chief executive Philip Moore. Legal & General saw its individual annuity business grow strongly, but this was more than offset by a sharp fall in bulk annuity business. Standard Life also struggled to generate any forward momentum from its UK business and was also another failed suitor in the battle for Resolution.
The year ahead brings the near certainty of tough trading conditions, although there remains a growing awareness of the need to provide for older age. Life companies will continue to press for further business relationships with banks to promote their products and reduce reliance on independent financial advisors for new business. This should also help to reduce persistency rates where policy holders are encouraged to switch providers to take advantage of better terms, leaving life assurers bearing the upfront IFA commission costs without accruing any profit from the policy. At the same time, people are tending to live much longer than many actuarial projections have catered for, and there is likely to be a revision in reserve requirements as a result. And the level of business created through mortgage related insurance and with-profit policies is also expected to come under pressure as mortgage applications fall.
But despite all this gloom, business outside the UK is showing strong growth, and overall, the leading insurers on average are trading at less than embedded value and offering decent yields, which underpins the sector's medium-term attractions.
