Once bitten - but the watchdog can't be shy: life policies are all the rage again

Outlook

Workers in West Somerset are most likely not to be paid the living wage, according to government figures

You wouldn’t expect dusty books of old life insurance policies to be on lists of hot business sectors, with big-money buyers battling each other to get hold of them. And yet they are. In fact it wasn’t so long ago that a man called Clive Cowdery built two fortunes out of the policies by crunching lots of them together and then selling them on.

Private equity players and other big investors have also seen in them the potential for hitting the eye-popping targets they set for returns on investment – and so they have joined the feeding frenzy.

All this has also made for a veritable gold mine for investment banks, lawyers and other City advisers, because the turnover of deals has been dizzying.

And now the sector has started to pop again with the news that a company called Phoenix is hoping to tempt the private equity owners of rival Guardian Financial Services by dangling a billion pounds under their noses.

The only thing that might frustrate the ambitions of the Phoenix chief executive Clive CR Bannister (don’t forget those initials now), a man who says he wants to be “at the forefront of the next wave of consolidation of the UK closed life fund market”, is that he’s not alone.

Swiss Re, a giant insurance company, is also said to be interested in surfing this particular wave and there may be others too.

Now can you spot what’s wrong with this story? The question that is not asked often enough is what this excitement is all about. Why is so much money being spent chasing what ought to be a rather tedious, not to mention low-margin, business.

Perhaps it is because the margins aren’t so low after all, and the market served by the business is a captive one. Which leads to a second question: who is looking out for the policyholders while the City plays pass the parcel with their policies?

The answer to that should be the Financial Conduct Authority (FCA), and last year it did indeed decide to launch a review of the sector. Unfortunately, it chose to announce this by means of putting the man in charge of it up for an interview with a national newspaper. Control of the message was lost during this process, and a brief panic was created on the stock market while the watchdog dragged its feet over clarifying its intentions.

Which all rather obscured what the FCA wanted to do, which was to look at whether people who hold old life insurance policies are being treated fairly by the people who seem addicted to throwing money around in an unseemly competition to administer them.

The latest outbreak of activity suggests that the FCA is right to be concerned, and it is to be hoped that the people running the show there now aren’t tempted to shy away from taking action in the interests of those policyholders out of fear of fresh controversy when its report is published towards the end of the year.

Rent will stretch your budget every bit as much as buying

Good news, Generation Rent: the monthly bills levied by your landlords have finally joined Britain’s deflationary trend. However, the decrease in August amounted to just 0.1 per cent, according to figures to be released today by the estate agents Reeds Rains and Your Move.

That translates into a fall of just £1 on the £804 average paid in July – and even the limited comfort that might provide needs to be put into context because, year on year, average rents are still strongly ahead. August’s £803 average was up 5.5 per cent on the same month last year.

The annual rate of growth was down from 6.8 per cent in July, but the rental market is still inflating, and at a rapid rate.

An unhappy side effect of the new affordability tests – which the Bank of England requires lenders to conduct before approving mortgages – is that people who might once have stretched their budgets to buy homes are now forced to stretch those budgets even further just to rent. That unhappy fact is illustrated by some more of the estate agents’ figures, which show that one in 10 renters are now in arrears.

At a time of near zero interest rates, landlords’ yields average out at a positively balmy 5.5 per cent – with capital growth, including their annual returns, at 9.3 per cent.

Does that look at all unsustainable? A bad situation is being made even worse by right- to-buy legislation, which is reducing still further the already pitiful supply of affordable rental housing.

It’s immoral, and it’s disgusting, and it’s sadly going to get worse before it gets better.

Merlin won’t have an easy ride until safety is assured

Theme parks thrill by providing an illusion of danger. When that danger turns real, their operators have a serious problem.

This is the issue facing Merlin, the operator of Alton Towers, where an accident at one of its signature roller-coasters left 16 people injured.

The company has largely avoided a Thomas Cook-style PR disaster by responding quickly to the issue – saying sorry and pledging to pay. However, it has just revealed that theme park revenues and visits were down through the summer, with the division mired in the doldrums.

Business will probably remain subdued next year, and will stay that way until the company can find a way to convince people that they’re only at risk from phantom danger.