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BREXIT: European institutions will sell closed UK life insurance books, says Phoenix Group

More institutions will sell their closed UK life insurance books in the wake of Brexit, the head of Phoenix Group has told the Financial Times. 31 Aug 2016

The post-Brexit fall in sterling will encourage foreign businesses to sell, Phoenix chief executive Clive Bannister told the Financial Times. Phoenix Group is in the process of buying Axa's UK life insurance business.

"The earnings they receive [from UK subsidiaries] have been further reduced. We think that forces the tempo of strategic decisions on what to do with those assets," Bannister told the newspaper.

UK companies may sell, too, as closed insurance funds are expensive to run. They are more cost effective when run by large businesses like Phoenix, Bannister said.

Life insurance expert Bruno Geiringer of Pinsent Masons, the law firm behind said: "It’s fair to say that this is probably as good a time as any for life insurance groups to offload their non-core closed books."

"The FCA’s thematic review report published in March 2016 on the treatment of long-standing customers in legacy products certainly gave an impetus to the sector to look very hard at what it was doing with closed book products. There is a clear regulatory agenda about seeking value for money and insurers are wary of pressure to cut charges," he said.

"Accounting has been on the Solvency II reporting regime since the start of the year and will remain so for the time being at least until the Brexit negotiations determine whether the UK will change its solvency capital regime. Buyers should be able to see more clarity and transact with more certainty on the basis that they will be able to evaluate, generally on a standard formula, what they are getting for their money," Geiringer said.

Capital management, tax planning and sterling’s fall on the foreign exchange markets are important considerations for buyers and overseas buyers and investors are currently able to buy more pounds sterling for their currency, Geiringer said.

"Maintaining insurance closed books requires specialist skills which are different to running life companies which are open to new business. Some businesses that are focused on sales and marketing to win new business, such as the new pensions freedoms draw down products, may not wish to continue to hold on to their closed books. Often substantial capital can be tied up supporting a closed block of policies, such as annuities, and a sale can therefore release that capital to be better deployed elsewhere in the group or on other projects," he said.

"Consolidators can also benefit from economies of scale derived from managing several closed books either via an outsourcer or on one platform which is better geared up for run-off than a standard policy processing system. They can also manage the investments better in a larger fund than if they remain in various small funds that are left to run-off," he said.

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