High-street Bank Lloyds (LLOY) is best known for its increasingly profitable banking operations which have helped underpin generous dividend payouts. However its insurance division is often overlooked despite the considerable scale of this business.

Lloyds bought the 200 year-old Scottish Widows in 1999 for £7bn and last year further bolstered the division by bolting on Zurich Insurance’s £15bn UK pension arm.

But it was Scottish Widows’ entry into the bulk annuity market in 2015 that marked a real turning point for the company.

A bulk annuity is essentially a contract which pays a retirement income to a large proportion of participants in a pension scheme, freeing a company of investment, inflation and longevity risks. In return the insurer secures substantial assets and regular premiums.

Analysts at financial institution Jefferies note the bulk annuity market in the UK is a ‘major growth opportunity for UK insurers’ and only specialist players can be involved, Scottish Widows included according to them.

Jefferies views that Scottish Widows’ market share of UK bulk annuities has much less penetration than other parts of the group’s business where it enjoys an average market share of 19%. If it can raise its market share, it could result in a 6% uplift to Lloyds’ profit for 2019 and £3bn of value creation. (DS)

‹ Previous2018-02-01Next ›