Delivering legacy life insurance and pension product simplification

Administration upgrades

Administration upgrades deliver harmonized benefits through modern systems and align existing contract terms with the new harmonized benefits. Legacy systems are under increasing regulatory pressure, are expensive to maintain and frustrate wider business benefits. Harmonization reduces the operating expenses associated with maintaining legacy systems.

With-profits compromise

This involves conversion of with-profits products to unit-linked in exchange for a one-off uplift. With-profits business continues to be of decreasing importance to many firms, as it is mainly legacy business in run-off. With-profits conversion might be performed alongside fund consolidation of legacy ring-fenced funds to achieve diversification benefit. The nature of with-profits funds makes them challenging to manage, including from a risk capital perspective.

GARS compromise

The guaranteed annuity rates (GARs) compromise offers a one-off uplift in exchange for the guarantee associated with annuity purchase options. These guarantees are particularly onerous in periods of low interest rates. Despite providing a valuable benefit, customers are less likely to annuitize following ‘Freedom & Choice’, and GARs can interfere with the transfer process.

These are, of course, just examples. Pensions and life businesses should start with the objective of a more efficient legacy business and, by one means or another, legacy simplification will be the way to get there.

How to implement changes

The toolkit of legal techniques, mechanisms and processes include schemes of arrangement which require a court to approve some give and take with customers and using powers in legacy customer policies to effect change by way of endorsement or similar methods.

Change and innovation are not just the drivers for legacy simplification, they are part of the delivery too. Not only is the toolkit being deployed in ever more innovative ways, but technology and automation now help to streamline due diligence projects which identify the contractual impact of change. This is a big leap forward, making certain challenging projects feasible in terms of time and project costs.

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