London-based insurer Legal & General expects to downsize its annuities division as demand plunges for its once-obligatory retail products, a spokesperson confirmed to CIO.
In March, the UK Chancellor caught much of the industry by surprise by abolishing lifetime income product mandates for retirees.
For Legal & General and its competitors in the retirement business, the reform’s first effect was deeply depressed share prices. The stock, trading under the ticker LGEN, has largely recovered from its March 31 low of $204.69. The firm does not anticipate its individual annuities business will likewise rally.
“We believe the individual annuity market will shrink by as much as 75% by the end of 2015—down 50% for 2014, and down a further 50% in 2015,” Legal & General’s spokesperson told CIO. The firm has already seen a 40% drop in sales during the quarter following the reform’s announcement. “Legal & General’s retirement business requires fewer staff to deal with the lower sales volumes.”
Management began engaging with staff on downsizing plans at the company’s administrative center in Cardiff, Wales on July 29. No employees have yet been made redundant. When the consultation concludes, roughly 60 employees will likely be cut loose, according to a BBC report.
Legal & General took steps to diversify its annuity business away from the retail market during the last calendar year. Its 2013 annual report cited changes in regulation or legislation “that may have a detrimental effect on our strategy” as the corporation’s foremost risk. Last June, it completed the purchase of pension buyout specialist Lucida for roughly £149 million. Reinsuring New Ireland’s €600 million annuity book added another institutional revenue stream, as did underwriting £4.9 billion of pension scheme risk from BAE Systems.
“We expect retirees to take their pension savings in cash, use income drawdown, or turn to other existing or new income-related products to provide their retirement income,” Legal & General spokesperson explained.
“But, we are also working on the development of new products and retirement solutions, which we believe will generate more business in the future. These developments have been taken into account when making the decision to reduce the number of people we employ in this part of our business and will enable us to keep the potential job losses to a minimum.”
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