Weekly outlook: Insurers reporting; Senior Managers Regime update; and state pension age increase

The key events for UK wealth managers for the week starting 4 March

The week ahead is set for results from two of the country’s biggest insurance groups with Phoenix Group and Legal & General Investment Management (LGIM) both reporting.

Elsewhere, the Financial Conduct Authority (FCA) publishes its final guidance consultation on the Senior Managers and Certification Regime (SMCR) at the end of the week (Friday), and the first in a series of incremental rises to the state pension age occurs on Wednesday affecting anyone born between 6 January 1954 and 5 February 1954.

On the macro side, investors will be looking out for UK construction and services PMI and eurozone GDP. The UK economy is remaining surprisingly resilient given Brexit, yet Europe has been dragged down by Germany and Italy narrowly avoiding and entering recession in Q4 recession.

Phoenix Group

Phoenix Group is putting out results out on Monday (5 March) and is due to enter the FTSE 100 for the first time on 18 March.

Russ Mould, investment director at AJ Bell, said chief executive Clive Bannister (pictured) and team will “doubtless be hoping to make a positive impression with the full-year results” and there will be attention on its £3bn acquisition of the Standard Life Assurance business last year.

Mould said: “Phoenix continues to sign bulk annuity deals and Mr Bannister has already hinted at further acquisitions of closed books of business.

“The consensus forecast for the 2018 dividend is 46.2p per share, up from 45.08p last year, enough for a meaty 6.6% dividend yield, with a further increase to 47p pencilled in for 2019.”

He explained that the company has already announced that it expects to beat its annual cash generation target of £550m to £600m and analysts will be looking toward the goals laid down for 2019 and beyond, especially as this cashflow underpins the generous dividend.

However, Mould added: “One further area of scrutiny will be the company’s exposure to equity release mortgages. The Prudential Regulatory Authority is looking closely at this market and it does expose the firm to any (admittedly unexpected) drop in UK house prices.”

Legal & General

Legal & General Investment Management (LGIM) is due to put out results on Tuesday (6 March).

Mould said analysts will be looking at performance across the four main operating units – Retirement, Investment Management, Insurance and Capital, with asset flows, annuity sales and annuity releases all major swing factors.

“Attention will focus on customer (out)flows, especially on the passive funds side, and LGIM’s efforts to combat margin pressure,” he said.

LGIM also recently announced it would appoint Michelle Scrimgeour, who is currently the CEO of Columbia Threadneedle’s EMEA business, as CEO of the firm to replace outgoing CEO Mark Zinkula after he retires on 31 August 2019.

Ryan Hughes, head of active portfolios at AJ Bell, said: “The appointment of Michelle Scrimgeour at LGIM represents an opportunity to reignite the investment arm of Legal & General.

“While it has grown substantially through a focus on the UK pensions market, from my perspective as a fund selector, I struggle to identify which capabilities it is genuinely world class in. The focus on passive has been successful but it now needs to step up to compete head on with iShares and Vanguard while the actively managed capability struggles to stack up against the competition almost across the board.

“As one of Europe’s largest asset managers, there is huge potential to build on and it will be interesting to see how Scrimgeour looks to reshape the business.”

FCA Senior Managers and Certification Regime guidance

On Friday (8 March) the Financial Conduct Authority (FCA) publishes its final guidance consultation on the Senior Managers and Certification Regime (SMCR).

The watchdog announced in June 2017 it was extending the regime to “almost all” financial services businesses, including asset and wealth managers.

The regime was created after the financial crisis to make senior management at banks and insurers personally responsible for misconduct by their staff.

State pension age increase

The first in a series of incremental rises to the state pension age occurs on Wednesday (6 March).

“Anyone born between 6 January 1954 and 5 February 1954 will be affected by the latest incremental rise in the state pension age,” said AJ Bell senior analyst Tom Selby.

“Those in this bracket will have a state pension age somewhere between 65 and 3 months and 65 and 4 months, depending on their date of birth.”

As set out in last year’s Autumn Budget the state pension age will gradually increase for both men and women to reach 66 by October 2020. The incremental approach is “designed to ease the pain for those affected,” said Selby.

The state pension age will increase again from 66 to 67 between 2026 and 2028.

“While state pension age increases are never going to be popular, the Government argues they are necessary to manage growing costs as a result of rising life expectancy over decades,” he added.

UK construction and services PMI

UK PMI Construction figures are expected to land on Monday (4 March) while PMI Services are reported on Tuesday (5 March).

Growth in Britain’s construction sector fell to a three-month low in December after falling to 52.8 from 53.4 in November.

By contrast, China’s PMI for February dropped to 49.9  marginally higher than January’s reading of 48.3 as the country’s economy continues to struggle.

Chelsea Financial Services managing director Darius McDermott said PMI is “one of these things you don’t need to think long and hard about – is it up or is it down Do people feel things are getting better or worse?”.

“I have been pleasantly surprised by quite how resilient the UK economy has been,” he added. “I think Germany avoided recession by having zero growth and certainly Europe is struggling. We are doing better than you might have thought at a headline rate with Brexit.

EU GDP Q4

On that point, people will be keenly observing the eurozone GDP figure on Thursday (7 March) given the recent economic woes of Germany and Italy.

In Q4 2018, Italy slipped into recession for the third time in a decade after its economy shrank 0.2% between October and December. This followed a 0.1% fall in the previous three months.

Germany narrowly avoided recession – defined as two consecutive quarters of declining growth – in Q4 after posting stagnant growth at 0%.

McDermott said it will be interesting to see whether Europe is contracting. “I think it will probably be poor,” he said of the upcoming GDP figure.

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