Life shares plunge on disclosure demands

LIFE insurance shares fell sharply yesterday as investors took a gloomy view of the impact of the Treasury's demands for disclosure in cash terms of the commissions paid to salesmen, writes Paul Durman.

Legal & General fell 31p to 470p, Lloyds Abbey Life dropped 28p to 412p, Britannic Assurance was down 24p at 435p, and Prudential Corporation slipped 22p to 309 1/2 p. Commercial Union, the composite insurer with the largest life business, fell 14p to 609p and Sun Alliance was down 10p to 374p.

The Treasury's demands went beyond the recommendations of the Office of Fair Trading, by insisting on 'broadly equivalent' disclosure by tied agents, such as the leading banks and most building societies.

'This is the worst possible scenario for the life industry,' said David Hudson, insurance analyst at Credit Lyonnais Laing. 'Clients will be discouraged when they see how much is taken in hard cash. (The shares) could fall a lot further.' Goldman Sachs changed its recommendations on Prudential and Legal & General from buy to hold.

Analysts said the impact of 'hard disclosure' of commissions would fall hardest upon regular premium business, where commission can swallow up the first year's payments.

Roman Cizdyn of Smith New Court said the effect on the bank- owned life offices, which pay less in commission, would depend on whether the rules forced them to reveal the salaries and benefits they pay to their salesmen.

Standard Life, the largest mutual life office, warned: 'It will be very difficult to produce equivalent disclosure for direct salesmen. We could end up with figures . . . that would be very difficult to compare or that may even be misleading. That cannot be in anyone's interest, least of all the consumer.'