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Comment: SLA may have axed insurance but Lloyds is rising rival

Comment: SLA may have axed insurance but Lloyds is rising rival

Standard Life Aberdeen’s disposal of its insurance arm to Phoenix Group this morning may have not been a deal worked on for years but there was more than a hint of inevitability about the sale.

Ever since the Standard Life Aberdeen mega-merger was first announced last March there was speculation the group would get rid of its insurance arm and solely focus on asset management (after all this has been the reaction of most of the biggest providers to pension freedoms).

Last April the analyst RBC said a sale of the insurance business was likely and any chances of this happening were increased dramatically when the news came through last week that Lloyds was pulling £109 billion of assets from Standard Life Aberdeen with the Swip decision.

Talks for an insurance merger between Lloyds-owned Scottish Widows and Standard Life failed before Christmas, according to the Sunday Times, and when those talks collapsed Lloyds chief executive Antonio Horta-Osorio must have been happy to fire Standard Life Aberdeen from this £109 billion mandate.

The rationale for that Swip asset decision was that following Aberdeen’s merger with Standard Life – the Standard Life part of the group was now a significant rival to Scottish Widows particularly on pensions.

But the fight over this £109 billion in assets is not over yet.

A ‘contest’ is now taking place with ‘plenty of interest’ from asset managers, Lloyds’ chief Horta-Osorio said earlier this week.

Bizarrely this is a contest which Standard Life Aberdeen is still technically in (according to the Scottish Widows chief executive). Of course that is dependent on Standard Life Aberdeen getting rid of its ‘competition issue’, and the company has tried to bat away any claims the deal was a result of the Swip decision. 

‘Let me make it absolutely clear we have not done this transaction to solve the competition issues,' Standard Life Aberdeen’s joint chief executive Martin Gilbert told journalists. 

'If it helps us win the mandate we would be delighted but we did a good job for their policy holders and clients to I expect hopefully we will get a chance to re-tender.’

It is of course true there are other driving factors behind the insurance sale (the collapse in annuity sales post-pension freedoms, the rising insurance costs of Solvency II and asset management margins being squeezed to name but a few).

But this transaction does mean Standard Life Aberdeen is no longer a major competitor to Lloyds giving it a run for the Swip assets.

Or does it?

Just days after the Swip decision, Lloyds  earlier this week announced a new strategy which would see it make a big push into financial advice targeting £50 billion of financial planning and retirement assets by 2020.

As well as this, as New Model Adviser® revealed, its Scottish Widows arm is also going to develop its own adviser platform, probably on FNZ.

A big financial adviser play and a shiny new platform later and suddenly Lloyds does become more of a threat to Standard Life Aberdeen (and not through insurance this time).

And there is more.

Abraham Okusanya, Finalytiq director, said with this distribution push it would only be natural for Lloyds to get into asset management once more.

‘Why would they be buying a platform without an asset management business?’ he said. ‘There is no example in the UK right now of a successful life co-owned platform with no asset management business. Even with the asset management part [owning a platform] is very tricky.’

Abraham Okusanya said the latest developments mean Lloyds and Standard Life Aberdeen are becoming rivals.

‘With Standard-Life Aberdeen keeping its three platforms and its distribution arm 1825 then Scottish Widows will be parallel to that in having a platform and in Lloyds’ advice business. So then it is head-to-head competition except for the asset management bit.’

Lloyds boss Horta-Osorio stressed the bank is not interested in developing its own asset management capabilities itself earlier this week, and having exited asset management so recently it seems unlikely the bank will rush back to the market. 

But remember it still has the decision about who to award the £109 billion of assets to up its sleeve.

It is easily conceivable this could be awarded to a very large sset manager as part of an acquisition, or perhaps one that Lloyds takes a stake in.

If that does happen Lloyds will suddenly become a challenger to Standard Life Aberdeen but in very different way to a year ago. 

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