What's new:
■ Annuity sales down nearly 50 per cent on previous quarter
■ Deferral of purchases expected to increase as April 2015 approaches
■ Protection and care businesses unaffected by Budget pension reforms
The disruption to Partnership Assurance's (PA.) core annuity business caused by the March Budget has continued into the third quarter, with sales down almost 50 per cent on the previous quarter and almost three-quarters lower than the previous year. What's more, the retirement specialist warned in an earlier than expected trading statement that deferrals could increase in the run-up to next April, when the new pension rules are due to be implemented.
Individual annuity sales were £69m in the three months to 30 September, compared with £135m in the previous quarter and £260m in the same quarter of 2013. In response to growing concerns over the toxic reputation of annuities, Partnership is seeking to diversify by expanding overseas and focusing on its much smaller care and protection divisions. The care business made sales of £20m in the quarter, up nearly a fifth year on year. Partnership has also been attempting to grow its bulk annuity business, where it takes on the risks of old defined benefit schemes. But this area remains 'lumpy', with no sales at all recorded in the quarter.
Chief executive Steve Groves says negative sentiment towards annuities could well continue until the new regime is implemented in April 2015, but he reiterated his confidence in Partnership's ability to deliver growth in the longer term.
Panmure Gordon says...
Buy. Sales of individual annuities in the third quarter were close to our forecast, which is in line with previous guidance of a run-rate below 50 per cent of pre-Budget sales. Sales ahead of the new product launches will be minimal, as advisers' customers await the new product details. But the shares are trading at a significant discount to the embedded value at 30 June of 136p a share. Importantly, about 85 per cent of this embedded value is shareholder 'net worth', with only 15 per cent determined by future value. With the shares pricing in Armageddon, Partnership is a clear recovery story.
Bank of America Merrill Lynch says...
Neutral. It is unlikely the company will see a material improvement in sales until mid-2015. However, we continue to believe that Partnership's intellectual property will give it an advantage in the post-Budget world. There will continue to be demand for products that provide longevity protection, and we expect Partnership to be able to right-size its cost base. But the level of demand post-April remains very difficult to predict, and the near-term uncertainty could see sales fall further from already extremely depressed levels.
