Life assurers' shares tumbled last week after the Financial Conduct Authority (FCA) indicated it planned to probe closed life funds. Predictably, shares in the closed life specialists suffered most - Phoenix's (PHNX), for instance, tumbled 12 per cent on the news, while those of Resolution (RSL) and Chesnara (CSN) fell 7 per cent and 9 per cent, respectively. Even shares in such players as Aviva (AV.), Prudential (PRU) or Legal & General (LGEN) slipped 2-3 per cent.
But much of that volatility reflected the clumsy manner in which the news broke. Specifically, news reports appeared on Friday, 28 March suggesting that the FCA planned a review of life and pensions policies sold between 1970 and 2000, covering some 30 million customers - driving fears that another large scale mis-selling type probe might be under way. The FCA's clarification statement some hours later, though, suggested a more benign agenda. That focused on "fair treatment" of long-standing customers and said that "a review of the sales practices for these legacy customers" wasn't planned.
The probe is now thought likely to focus on service levels provided to those with policies held in closed books. "In essence, it is a treating customers fairly exercise," believes analyst Ruairidh Finlayson of broker Brewin Dolphin. "Cross subsidisation, for example, is one of the concerns raised whereby closed books are disproportionately charged."
But it's hard to see significant implications from such a focus. For closed life players such as Phoenix and Chesnara, for instance, the issue of subsidising new business with heavy charges on closed books is "not an issue", says analyst Eamonn Flanagan of broker Shore Capital. That's because they don't write new business - although it could be more relevant for Resolution, which writes some new business. While, more generally, Mr Finlayson thinks that "if the advice and charges were compliant at the time [that a policy was written], including exit fees, these are unlikely to be amended now". Indeed, Mr Flanagan thinks the probe could turn out to be a "damp squib" and that any financial hit for the sector is "unlikely to be a big number".
