2015 saw considerable M&A activity in the UK Life Market with Aviva’s completion of its acquisition of Friends Life topping the pile and the announcement of the merger between Just Retirement and Partnership changing the outlook for the annuity market. The mutual sector also saw consolidation with LV=, Scottish Friendly, OneFamily and Oddfellows all growing through acquisitions or mergers.
What's in store for 2016 and beyond?
The proprietary sector continues to be dominated by pension savings and annuity business and the immediate annuity market continues to exist, albeit with lower sales volumes than before pension freedoms were introduced. We expect the introduction of a secondary annuity market in 2017 to generate considerable interest although we remain sceptical about the overall business case for investors and whether policyholders will find the terms for assignment attractive. A number of companies have launched combined annuity / drawdown products but we have not yet seen a significant amount of product innovation to take advantage of pension freedoms.
"Despite the ability of specialist providers to continue to flourish, the trend is towards bigger and bigger players."
The bulk annuity market continues to thrive. Scottish Widows entered into the market and JR and Partnership both continued to make ground offering medically underwritten solutions, primarily through top-slicing.
The mutual sector still maintains with-profits savings at its heart but many players are expanding their offerings to provide a throughout-life suite of products for their target markets, either under their own brand or through white-label structures.
Despite the ability of specialist providers to continue to flourish, the trend is towards bigger and bigger players. Clearly, economies of scale are a driver, but we feel that the market mechanics may also be pushing this trend. Technology and the existence of portals for sales of many products mean that access to providers is easier than ever. However, this means that price and brand recognition are the key drivers of winning business.
Bigger firms have bigger advertising pockets and so will win out as long as they maintain a reputation for strong customer service. They are also more able to secure distribution channels.
Pricing techniques are becoming more sophisticated and those with the biggest data pools will have an advantage. Investment strategies are becoming more illiquid and those with the ability to originate and expertise to manage and provide appropriate governance around such assets will have greater capability to achieve greater returns.
So, it seems this trend will continue to run. We expect to see further consolidation and firms expanding their product ranges to take advantage of brand recognition, consumer loyalty, or to achieve greater economies of scale.