2014-09-17-奥纬咨询-The_Future_of_the_UK_Life_Industry_23页_766kb

Summary of "THE FUTURE OF THE UK LIFE INDUSTRY"

Core Content

This report outlines Oliver Wyman's market projections for the UK life insurance industry over the next five years, emphasizing the need for strategic reinvention to capture significant growth opportunities. The focus is on the transition from traditional life insurance models to new, more flexible retirement solutions and the bulk annuity market, which is expected to play a crucial role in unwinding the legacy defined benefit (DB) pension system.

Main Strategic Opportunities

1. Flexible Retirement System

   • The UK's new flexible retirement system is a major opportunity for life insurers to act as the retail interface between workers and pensioners.
   • The industry is projected to manage £1,200 BN on insurance platforms by 2028, with annual pension payments reaching around £35 BN.
   • This will lead to long-term dividend growth prospects of approximately 4% p.a., significantly higher than current levels.

2. Bulk Annuity Market

   • The bulk annuity market will be a key driver of value, with over £100 BN of transactions expected over the next five years.
   • Margins in this market are currently more attractive than in individual annuities, with pricing around 70-80 bps p.a. higher.
   • The market is expected to grow at around 19% p.a. from 2014 onwards, despite potential margin contraction due to increased competition.

Key Challenges and Strategies

A. Cash Generation from In-Force Book

• Insurers must focus on in-force management to generate the necessary cash for dividends and strategic investments.
• Cost control and investment in illiquid assets are critical to improving asset spreads and cash flow.
• Current business models are expected to result in flat cash generation over the next five years unless significant changes are made.

B. Strategic Business Reinvestment

• Insurers need to develop new digital platforms and customer engagement models to support the growth of retirement propositions.
• These platforms must cater to different client segments and life stages, with a mix of self-directed and advised decision-making.
• A radical systems build is required to support these new propositions, focusing on digital capabilities, automation, and streamlined processes.

C. Distribution and Advisory Models

• The industry must evolve its distribution strategies, including direct-to-consumer (D2C) models, independent financial adviser (IFA) propositions, and digital channels.
• Conduct risk and regulatory uncertainty remain challenges, but the Financial Conduct Authority (FCA) is expected to address these, enabling more confident delivery of simplified advice and execution-only models.

Key Initiatives for Value Creation

• In-force management is central to achieving the £1 BN p.a. additional cash generation target by 2018.

• This includes:

  • Commercial effectiveness for back-book clients (cross-selling, up-selling, encouraging further deposits)
  • Operational efficiency (process optimization, IT improvements, cost variabilisation)
  • Financial management (ALM strategy, de-risking through reinsurance and securitisation)
  • Closed book management (separating and optimising legacy business)

• Illiquid investments are expected to play a pivotal role in increasing spreads and generating additional shareholder value, especially in annuity liabilities.

Strategic Outlook

• The next five years will be a transformational period for the UK life insurance industry.
• The retirement market and bulk annuities are expected to become the main drivers of future value and growth.
• Insurers must balance innovation with cost control to ensure long-term profitability and shareholder returns.
• There is a clear shift from traditional, capital-intensive models to more digital, flexible, and client-centric approaches.

Conclusion

The UK life insurance industry is at a pivotal moment, with the potential to significantly enhance shareholder value through strategic reinvention. Success will depend on a combination of innovative product development, effective in-force management, and evolving distribution models. The ability to generate cash from both new and legacy businesses will be crucial in supporting dividend growth and long-term value creation.