Scottish Mutual is looking to enter the stakeholder market despite warning from a financial strength...
Scottish Mutual is looking to enter the stakeholder market despite warning from a financial strength ratings agency that its IFA-focused market may be too narrow to successfully sell the product.
Intermediaries will remain the dominant channel of life pensions distribution but IFA-only providers such as Scottish Mutual may suffer if they do not explore other methods of reaching the consumer market, according to international insurance rating agency AM Best.
AM Best rates UK life companies based on their financial strength, ranging from S for suspended, D for poor, C+ for marginal and A+ and A++ as superior.
Scottish Mutual was recently rated A+ by the group for its strong position in the adviser market and the financial support of its parent company, Abbey National.
Mike Hooton, senior financial analyst at AM Best, said that despite believing the group is well positioned to offer stakeholder in low unit costs, its reliance on a single channel of distribution could make it vulnerable. Alterations in consumers' preferred methods of buying insurance or regulatory change disadvantaging IFAs compared with other methods of distribution could weaken the life office's growth prospects, he warned.
AM Best said Scottish Mutual has a strong position in the intermediary market, particularly with the networks and major brokers, with the top 40 IFA firms it dels with generating more than 50% of its business.
Hooton said the effect on IFAs of the introduction of stakeholder pensions would be offset by major growth in the demand for advice on retirement and single premium investments.
IFAs were responsible for the sale of 68% of new single premiums and 40% of new regular premiums in 1998 compared with 54% of single premiums and 36% of regular premiums in 1989, according to the report.
Heavy concentration on single premium products, which have contributed 60-70% of annualised new business, or about 95% of total new premiums in recent years, may also leave Scottish Mutual vulnerable to volatility and persistency risks.
The success of Scottish Mutual's with-profit investment bond, which had a market share of 16% of the IFA with-profit bond market and ranked second only to Prudential, has pushed concentration far above the market average of 40-50% of annualised new business from single premiums .
AM Best rated Scottish Mutual A+ for its strong and improving position in the intermediary market and continued financial support of its parent Abbey National as well as the operational efficiencies achieved by sharing the costs with its sister companies.
Targeting intermediary market
Represents £8trn in assets
Simplify and modernise
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