(UPDATE) Insurers have pared back some of the morning's losses after the City regulator outlined some of the details of its planned review of historic pensions and investment sales.
The Financial Conduct Authority (FCA) has issued a statement about its plans, after insurance company shares dived this morning on a report in the Telegraph claiming the regulator would be reviewing policies dating back to the 1970s and could ban some of the exit fees attached to them.
The FCA said in a statement that it did not intend to remove exit fees from the policies 'providing they were compliant at the time' and would be reviewing only a representative sample of firms.
Shares in insurers rallied on the news, with most making up around half the ground lost in the morning's trading. Resolution (RSL.L), a buyer of old life insurers, had been hardest hit and was down by as much as 15% during the day. After the FCA's announcement, it mounted a moderate recovery to trade 7.6% down, a drop of 24p, at 295p. Closed book insurer Phoenix (PHNX.L) also mounted something of a recovery, to stand 87p, or 11.8%, down at 650p, having fallen to a low of 565p. The FCA's clarification did little to boost rival Chesnara (CSN.L), which now stands at 296p, a drop of 31p, or 9.5%.
Aviva was down 18.5p, or 3.8%, at 465p following the announcement, while Legal & General (LGEN.L) was down 8p, or 3.8%, at 204p. Prudential (PRU.L) and Standard Life (SL.L) were down 2.0% and 1.8% at £12.88 and 379p respectively. Old Mutual (OML.L), which has disposed of much of its UK legacy business, was affected little by reports of the FCA's plans. Following the FCA's announcement it stood at 200p, down by a penny, or 0.6%.
Financial services group St James's Place (SJP.L) meanwhile mounted a near-full recovery, and was down 3p, or 0.4% at 842p after the announcement.
The FTSE was up 39 points, or 0.6%, at 6627.
Insurers hammered as FCA widens charging probe (10:14)
Shares in insurance companies have dived sharply after reports the City regulator is planning an inquiry into their historic pension and investments sales.
According to The Telegraph, the Financial Conduct Authority (FCA) is to review sales of pensions, endowments, investment bonds and life insurance stretching back to the 1970s.
The FCA is concerned that insurers are exploiting long-standing customers, who are not given the treatment as new clients and are left with high fees and poor service, according to the paper.
The regulator is expected to announce the review on Monday and will consider banning exit fees that can deter customers from switching to another provider. It is honing in on the practice of some insurers to use these closed 'zombie' funds to cover the costs of other areas of their business.
Resolution (RSL.L) a buyer of old life insurers was the hardest hit, leading the fallers on the FTSE 100 with a drop of 36p, or 11.1%, to 284p. Its large closed book business, where it services existing clients but does not take on new ones, means it potentially has the most to lose from the FCA's move. Closed book insures Phoenix (PHNX.L) and Chesnara (CSN.L) were hit similarly hard, dropping 9.5% and 7.3% respectively. Phoenix was down 70p at 667p while Chesnara fell 24p to 667p.
Aviva (AV.L) slumped 27p, or 5.6%, to 457p, while Legal & General (LGEN.L) slid 12p, or 5.6%, to 201p. Standard Life (SL.L) and Prudential (PRU.L) dropped 2.6% and 3.3% to 376p and £12.72 respectively. Old Mutual (OML.L), which has disposed of much of its UK legacy business, dipped a penny, or 0.5%, to 200p.
Also reeling was financial sales group St James's Place (SJP.L), which dropped 24p or 2.8% to 822p.
It is the second time in two weeks that insurers have weighed on the index. Changes to pension rules announced in last week’s Budget that will remove the need for many to buy an annuity caused their shares to dive, although they had recovered some of that ground before today’s dip. Today's news also caps a difficult week in which, as expected, the government confirmed a 0.75% charge cap for workplace pension policies used under its auto-enrolment rules.
Despite the hit to insurers, the FTSE 100 gained 37 points, or 0.6%, to 6,625, with strong performance from the miners amid optimism any Chinese stimulus would hike demand for industrial metals. News agency Xinhua has reported a speech from Chinese premier Li Keqiang, in which he pledged the government had ‘policies in store to counter economic volatility for this year’.
Amongst the rising miners were:
- Glencore (GLEN.L) up 7.3p, or 2.4%, at 314p
- Fresnillo (FRES.L) up 14.5p, or 1.7%, at 852p
- Anglo American (AAL.L) up 26.0p, or 1.7%, at £15.13
- Randgold (RRS.L) up 67.0p, or 1.5%, at £45.53
UK GDP figures published by the Office for National Staistics offered few surprises, with growth in the last quarter of 2013 confirmed at 0.7%, although growth for the whole of 2013 was revised down marginally, from 1.8% to 1.7%.