London Life will close its doors to new business

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London Life, the Bristol-based insurer, will close its doors to new business. The shutdown indicates the company is a victim of a collapse in public confidence in the life and pensions industry.

The company, owned by the Australian insurance giant AMP, said in an announcement yesterday that about 450 of its 650 staff would lose their jobs.

It intends to continue managing pounds 2bn of funds on behalf of its 90,000 policyholders, netting it upwards of pounds 20m a year in fees.

Jim Divers, chief operating officer at London Life, said: "Policyholders' money will be safe and we will keep accepting existing premiums. AMP will provide solvency and other support.

"This will enable a more equity-based investment strategy and should enhance returns to policyholders.

"Future expense levels will be greatly reduced. We estimate we will be cutting our operating costs from pounds 32m to about pounds 12m a year."

London Life's closure reflects the sharp downturn in new business for almost all UK insurers. It also raises questions over the likely survival of other similar-sized companies.

Research by the actuaries Bacon & Woodrow last year concluded that up to half the 90-plus insurers operating in the market today may disappear by 2000.

Only 10 per cent appeared to be competitive and would be forced to seek mergers or be taken over. Bacon & Woodrow predicted that smaller, foreign- owned companies - like London Life - were among the most vulnerable.

Figures released earlier this week by the Association of British Insurers, the industry trade body, showed a 20 per cent fall in sales in the first quarter of 1995, compared to the same time last year. The decline was even more marked in pensions business, where sales tumbled by 31 per cent.

Sales in this area have been badly dented by the recent pension transfer scandal. Up to 1.5 million people may have been wrongly advised to take out personal pensions.

London Life's own problems mirror this crisis. Since its merger with AMP in 1989, the company prided itself on a marketing strategy aimed at high net-worth clients - unlike its sister company, Pearl.

London Life employed a 250-strong sales and support team who were remunerated mainly on a salaried basis. Its approach failed to halt the avalanche of adverse publicity against the industry, despite a pounds 50m cash injection by AMP in 1992. Sales in 1994 were 13 per cent down on the previous year. In the year to April, they were down a further 20 per cent on the first quarter of 1994.

Mr Divers said: "We were a small company and have been finding it increasingly difficult to build critical mass. In an over-supplied industry, we have decided the best option is to close to new business."