Market Guide: Life Insurance and Pensions in the UK 2006

This report is most appropriate for companies looking for an overview of the life insurance and pensions markets in order to assess the level of market opportunity (using our market data and forecasts), regulatory barriers and opportunities, and level of competition in the market. For more detailed market data please refer to Datamonitor's European Life and Pensions Interactive Database 2006.

Report Highlights

A-day introduced the potential for investors to opt for long term savings products offered by asset management and other firms, instead of insurance companies. It also has implications for providers' relationships with their intermediaries, from the point of view of ensuring the quality of advice, given consumers' expanded investment options. The Pensions Commission's Second Report advanced proposals for the establishment of a National Pensions Savings Scheme (NPSS). This NPSS has the potential to increase savings flows and the demand for annuities, with the consequent positive impact on life insurance firms in the long term. UK life insurance companies face increased challenges in the form of low rates of inflation, competition from alternative long-term savings instruments and reform of the pensions regulatory regime. Firms may respond to the challenge of competition by pursuing mergers and acquisitions, which would alter the current low rate of market concentration.
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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
Despite marginal increases in premiums in the last five years, between 2006 and 2010, the UK life and pensions market is set to grow at a compound annual rate of 4.7%, driven primarily by growth in pensions 2
The size of the UK life and pensions market increased marginally between 2001 and 2005 2
Increased investment in pensions will produce higher growth rates in the next five years 2
The market is being shaped by EU legislation as well as government intervention to simplify the pensions regulatory framework 2
The market is dominated by UK-incorporated firms, by number, and by the top five insurance groups, by premium income 3
Among the market leaders, banking and insurance groups alike rely on distribution through bank networks and financial advisors 3
Table of Contents 4
Overview 1 4
Catalyst 1 4
Summary 1 4
Executive Summary 2 4
Despite marginal increases in premiums in the last five years, between 2006 and 2010, the UK life and pensions market is set to grow at a compound annual rate of 4.7%, driven primarily by growth in pensions. 2 4
MARKET OVERVIEW 7 4
The size of the UK life and pensions market increased marginally between 2001 and 2005 7 4
MARKET FORECASTS 14 4
Increased investment in pensions will produce higher growth rates in the next five years 14 4
MARKET REGULATION 16 4
The market is being shaped by EU legislation as well as government intervention to simplify the pensions regulatory framework 16 4
COMPETITIVE MARKET STRUCTURE 21 4
The market is dominated by UK-incorporated firms, by number and by the top five insurance groups, by premium income 21 4
MARKET LEADERS 24 4
Among the market leaders, banking and insurance groups alike rely on distribution through bank networks and financial advisors 24 4
APPENDIX 26 4
Definitions 26 4
Further reading 27 4
Ask the analyst 29 4
Datamonitor consulting 29 4
Disclaimer 29 4
Table of figures 5
Figure 1: Life premiums accounted for just over half of total premium income in 2005 7 5
Figure 2: Individual policies account for the majority of life and pensions premium income 9 5
Figure 3: In the last 5 years, compound annual growth in premium income from non-unit-linked insurance has been negative 10 5
Figure 4: Following a decline in 2002, the proportion of investment assets held in equities has been increasing 12 5
Figure 5: Pensions will account for an increasing proportion of the growth in premium income between 2006 and 2010 14 5
Figure 6: UK life insurance companies and composites account for less than half of the market, by number 21 5
Figure 7: Aviva leads the UK life and pensions sector 22 5
Table of tables 6
Table 1: Life and pensions insurance premium income, segmented by product, EURm, 2001-2005 8 6
Table 2: Life and pensions insurance premium income, segmented by product, in percentages, 2001-2005 8 6
Table 3: Life and pensions insurance premium income, segmented by buyer, EURm, 2001-2005 9 6
Table 4: Life and pensions insurance premium income, segmented by buyer, in percentages, 2001-2005 10 6
Table 5: Life and pensions insurance premium income, segmented by investment risk, EURm, 2001-2005 11 6
Table 6: Life and pensions insurance premium income, segmented by investment risk, in percentages 11 6
Table 7: Investment assets of life and pensions insurance companies, EURm, 2001-2005 12 6
Table 8: Investment assets of life and pensions insurance companies, in percentages, 2001-2005 13 6
Table 9: Life and pensions insurance premium income, segmented by product, EURm, 2006-2010 15 6
Table 10: Life and pensions insurance premium income, segmented by product, in percentages, 2001-2005 15 6
Table 11: Number of life insurance providers segmented by type, as at Dec 2005 22 6
Table 12: Top 5 life and pensions insurers by premium income, as at Dec 2005 23 6
MARKET OVERVIEW 7
The size of the UK life and pensions market increased marginally between 2001 and 2005 7
Premium income in the UK life and pensions market is almost evenly split between life insurance and pensions 7
The proportional distribution of premium income between group and individual policies has been largely consistent between 2001 and 2005 9
Following a decline in 2003, premium income from non unit-linked insurance increased again in 2004 and 2005 10
Equities consistently account for the single highest proportion of the investment assets of life and pensions insurance companies 12
MARKET FORECASTS 14
Increased investment in pensions will produce higher growth rates in the next five years 14
Over the next 5 years, premium income in the life and pensions market is set to grow at a compound annual rate of 4.7%, compared to 0.2% growth between 2001 and 2005 14
MARKET REGULATION 16
The market is being shaped by EU legislation as well as government intervention to simplify the pensions regulatory framework 16
The Financial Services Authority regulates the UK life and pensions sector 16
Insurance companies which belong to financial conglomerates face additional supervisory requirements 17
The Individual Capital Adequacy Standards allow firms greater flexibility in risk management 17
The Insurance Mediation Directive creates a single passport for insurance intermediaries and enhances consumer choice 17
The IORP directive creates new market opportunities 17
A-day reforms have fostered growth and intensified competition in the pensions market 18
Further regulatory changes are anticipated for the UK pensions industry 18
Proposed anti-money laundering legislation implies an additional administrative burden for insurance companies and brokers 19
Upcoming laws will enhance consumer protection 19
EU proposals will address consolidation in the financial services sector 19
COMPETITIVE MARKET STRUCTURE 21
The market is dominated by UK-incorporated firms, by number and by the top five insurance groups, by premium income 21
42% of all life and pensions providers are UK incorporated firms 21
The top 5 life and pensions insurers control 46% of the market, by premium income 22
MARKET LEADERS 24
Among the market leaders, banking and insurance groups alike rely on distribution through bank networks and financial advisors 24
Aviva is the life insurance market leader, based on premium income 24
HBOS trails the market leader in the life insurance sector 24
Standard Life ranks third among life insurance companies 24
Legal & General is the fourth highest ranked life insurer by premium income 25
Lloyds TSB rounds out the top 5 life insurers 25
APPENDIX 26
Definitions 26
Capital redemption policy / bond 26
Composite insurer 26
Defined contribution pension scheme 26
Defined benefits pension scheme 26
Group policy 26
Individual pension scheme 26
Individual policy 26
Life assurance 26
Occupational pension scheme 27
Pension insurance policy 27
Premium income 27
Regular premium 27
Single premium 27
Technical provisions 27
Traditional insurance 27
Unit-linked insurance 27
Further reading 27
Interactive Databases 27
Reports and Briefs 28
Ask the analyst 29
Datamonitor consulting 29
Disclaimer 29

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Table 1: Life and pensions insurance premium income, segmented by product, EURm, 2001-2005 8
Table 2: Life and pensions insurance premium income, segmented by product, in percentages, 2001-2005 8
Table 3: Life and pensions insurance premium income, segmented by buyer, EURm, 2001-2005 9
Table 4: Life and pensions insurance premium income, segmented by buyer, in percentages, 2001-2005 10
Table 5: Life and pensions insurance premium income, segmented by investment risk, EURm, 2001-2005 11
Table 6: Life and pensions insurance premium income, segmented by investment risk, in percentages 11
Table 7: Investment assets of life and pensions insurance companies, EURm, 2001-2005 12
Table 8: Investment assets of life and pensions insurance companies, in percentages, 2001-2005 13
Table 9: Life and pensions insurance premium income, segmented by product, EURm, 2006-2010 15
Table 10: Life and pensions insurance premium income, segmented by product, in percentages, 2001-2005 15
Table 11: Number of life insurance providers segmented by type, as at Dec 2005 22
Table 12: Top 5 life and pensions insurers by premium income, as at Dec 2005 23


Figure 1: Life premiums accounted for just over half of total premium income in 2005 7
Figure 2: Individual policies account for the majority of life and pensions premium income 9
Figure 3: In the last 5 years, compound annual growth in premium income from non-unit-linked insurance has been negative 10
Figure 4: Following a decline in 2002, the proportion of investment assets held in equities has been increasing 12
Figure 5: Pensions will account for an increasing proportion of the growth in premium income between 2006 and 2010 14
Figure 6: UK life insurance companies and composites account for less than half of the market, by number 21
Figure 7: Aviva leads the UK life and pensions sector 22

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