Resolution is investigating the possibility of establishing a separate annuity company owned by shareholders, to capture a larger share of the vesting pensions market, as well as expanding its protection market position.
In its year end results, the insurer specialising in managing closed life funds Resolution states as “part of our customer strategy, we are developing plans in 2007 to increase our retention of annuities from vesting in-force pension policies to the mutual benefit of policyholders and shareholders”.
And in the presentation accompanying the results, Mike Biggs, group chief executive of Resolution, says one of the options the company is investigating in relation to this is the establishment of a “separate shareholder-owned annuity company in 2007”.
At the same time, Resolution has confirmed its intention to improve its protection business - a division which it has acquired through the takeover of Scottish Provident and Abbey National Life in September 2006.
The firm points out distribution for its protection business is currently through IFAs and Abbey’s 700strong branch network, but it intends to make improvements to the business including the development of an e-processing platform - which is expected to be in place by the end of June 2007 - along with new products.
In addition, Resolution seems to be placing more emphasis on new protection business, as it says a dedicated sales force for the IFA networks was put in place by Abbey during the first quarter of 2007, while the insurer has also recently appointed Alison Turner-Holmes as head of marketing at the firm - formerly head of marketing for protection at Skandia - alongside a head of UK new business.
Resolution's results reveal the life office sales for the second half of 2006, on an annual premium equivalent (APE) basis, totalled £71m with a margin of 33% from a new business contribution of £23m before tax, while the present value of new business premiums (PVNBP) amounted to £596m.
However, in the second half of 2006 there was a new business strain of just £9m compared to an estimated £100m in the first half, which it says reflects the benefit of the Financial Services Authority’s (FSA) Policy Statement 06/14: ‘Prudential Changes for Insurers’, which “extends the concept of economic realism to the prudential regulation of all life insurance firms”.
Resolution states this change will ensure the average Internal Rate of Return (IRR) on new business will beat its 12% target, as it points out the implementation of PS06/14 has “dramatically reduced the amount of capital required to support new protection business”.
As a result, the firm argues an IRR-based target for the profitability of new protection business is “no longer believed to be sufficiently challenging”, so for new protection business it will be targeting a 50% of APE before tax margin, in addition to its current 12% IRR target.
And although the company admits “competition continues to be significant for protection products” it claims to have “negotiated improved terms with our re-insurers, which will help mitigate the impact of this competition”.
Meanwhile, Resolution says its takeover of Abbey’s life business has been successfully completed, with the internal rate of return (IRR) on the acquisition increasing from the original estimate of 16% to 18%.
It also reveals the European Embedded Value (EEV) as of 31 December 2006 increased to £4,197m, up from £2,141m at the end of 2005, while International Financial Reporting Standard (IFRS) operating profits for the year were £532.5m up from £180.4m in 2005, including the post acquisition profits of £158m from Abbey’s life businesses.
In the life division, Resolution states the IFRS operating profit totalled £479m, which it says reflects a “favourable experience in mortality, morbidity and persistency”, while the merger of seven of its life funds at the end of 2006 has added £65.5m net to the EEV.
It points out the new funds structure “creates the platform for future reconstructions, and a further merger of funds is planned for 2008”, which it estimates will increase the EEV by around £150m.
In addition, the results outline Resolution’s approach to Treating Customers Fairly (TCF), which includes offering customers “improved communication on their policy benefits, and access to independent advice where an IFA relationship does not already exist”.
Resolution states “enhanced customer information and policy retention teams have now been established in the former Abbey life companies and our Advice Referral Service is now available to Scottish Provident and Scottish Mutual customers”.
The figures reveal by the end of 2006 around 8,900 customers had been referred through this service to the firm’s advice partner, AWD Money Extra.
Although Resolution states once its “customer strategy moves from its current pilot phase to become fully operational in 2007” it will "further enhance this access to advice, provide more access to policyholder information through customer care teams and provide more informed choices through retention activities”.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7034 2681 or email [email protected]IFAonline
The forces at play in investment - most obviously, regulatory change, uncertain markets and shifting demographics - are as strong today as they were when Professional Adviser launched its sister magazine Multi-Asset Review in 2017.
Regulator has visited some firms already
Platforms react to Fidelity blocking Income Focus purchases
Chris Hill's letter to Treasury
Cash balance surges