A new survey by Deloitte of how UK life insurance firms operate a financial control cycle suggests many firms will have to adapt and automate their accounting processes to deliver their commitments to both policyholders and shareholders.

Deloitte noted four key challenges for the life industry based on the results of the survey:

• To clearly identify assets and their investment flows corresponding to different groups of policyholders so that their contribution to policyholder bonuses and shareholder profits may be calculated. For the first time last year, life companies were required by the FSA to publish their Principles and Practices and Financial Management (PPFM). These have shown that many with profits firms either use, or give themselves the right to use, different asset mixes for different groups of policyholders. Without a clear mapping of assets to the groups of policyholders it may be difficult to prove companies have dealt with customers fairly.
• Develop tax management and the understanding of tax variance to improve shareholder value management
• Develop a better understanding of the impact of lapses of policies on shareholder value and also upon remaining policyholders. Understanding what causes customers to lapse policies is also an important step to treating them fairly.
• Improve the use of the general ledger for management information. The current inability to compare actual performance with actuarial predictions creates difficulties in managing the business effectively.

Commenting on the survey findings, Demos Papasavvas, the head of the insurance practice at Deloitte said: “Increased scrutiny and customer distrust means the need for good reliable financial control cycle has never been greater than today. The industry has adapted to the new requirements of the FSA and life companies now need to ensure that they have robust accounting processes to support them. Increased automation is required to achieve more accurate, efficient and speedy closing of year end accounts and such an enhancement would greatly benefit shareholders. "

A survey overview is attached below for your reference.

Ends

Notes to editor:

Financial control cycle: Managing a life company involves taking a view on the future course of events, some of which are within the control of management, such as expenses, some of which are only partly under their control, such as mortality, and some of which are largely outside their control, such as interest rates and the performance of the share market. Financial control cycle is the process whereby companies, who begin a year making forecasts of sales, expenses, profit etc. analyse the actual results as compared to forecast to better understand their business performance and reset the assumptions for the following year.

The Deloitte survey analysed the financial control cycles of 19 firms, with £550 billion of admissible assets (end 2003).

PPFM: Historically life companies have operated a common with profits fund for all types of policies and management has considerable discretion as to how to allocate bonuses to policies. The introduction of PPFM in 2004 has made companies codify their practices between fundamental principles which change infrequently and practices which can change more often. These have revealed that current practice is often not to treat all policies alike but rather to group policies with similar characteristics such as the degree of guarantees given.

About Deloitte

In this press release references to Deloitte are references to Deloitte & Touche LLP.

Deloitte & Touche LLP is the UK's fastest growing major business advisory firm. The firm is based in 21 UK locations, with over 10,000 staff nationwide and fee income of £1,246 million in 2003/2004. It is a member firm of Deloitte Touche Tohmatsu, a leading professional services organisation, delivering world class audit, tax, consulting and corporate finance services, with around 120,000 people in over 140 countries. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity.

Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.

The information contained in this press release is correct at the time of going to press.