Great-West Says New Products Can Fill U.K. Annuities Gap

Great-West Lifeco Inc., Canada’s second-largest life insurer, plans to offer different retirement products in the U.K. if a change in regulation discourages purchases of annuities.

U.K. Chancellor of the Exchequer George Osborne said this week that he was scrapping a rule requiring retirees to buy annuities with their pension plan. The move will shrink the U.K. annuity market by 90 percent, Royal Bank of Canada said, as pensioners will no longer need products offered by companies including Great-West and Legal & General Group Plc.

“If we see a significant decline in annuity sales, we’ll naturally look to other products in the market,” Great-West Chief Executive Officer Paul Mahon said today in a phone interview. “There will be new products that emerge because people need retirement security and that will be our focus.”

Great-West reported C$3.26 billion ($2.9 billion) of insurance and annuity sales in the U.K. and Isle of Man last year, up 1.8 percent from 2012. Earnings from the European segment rose 35 percent to C$548 million in 2013.

Great-West was little changed at C$29.84 at 4:10 p.m. in Toronto. It has declined 8.9 percent this year, compared with a 5.2 percent rise in the Standard & Poor’s/TSX Composite Index.

Annuities generally guarantee customers a stream of payments over time. Some of the products ensure that a client’s initial deposit will increase in value.

Market Impact

U.K. annuity sales were at least 1 billion pounds ($1.6 billion) for 2013, Arshil Jamal, Great-West’s chief operating officer for Europe, said last month on a conference call.

“We don’t know what the market impact will be,” Mahon said. “An important part of this will be to do research to understand the emerging impact.”

The rule change will shave off 5 cents a share from Great-West’s 2015 earnings, Darko Mihelic, an analyst with RBC Capital Markets, wrote yesterday in a report.

U.K. annuities contribute the most profit to Great-West’s European unit, Doug Young, a financial analyst at Desjardins Securities Inc., said yesterday in a note to clients. He cut his target price to C$33 from C$34 “to reflect greater uncertainty in Great-West’s European operations.”

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