Comprehensive Retirement Income Products, page-25

I think the reduced life COE margin is due to the move towards the Japanese annuities, which are lower margin (but remain above the target 18% roe despite the lower margin). I haven’t listened to the webcast yet to clarify that.

@Just_a_guy

Thanks for pointing that out, I haven’t yet listened to the webcast either.

The increase in Japanese annuities can certainly have contributed to the compression in the COE margin. But, as they represent only 7% of the total Life liability mix (vis-a-vis 2% in FY17), it looks very unlikely to me that they alone can have caused a 36bp YoY drop in the COE margin.

I think we can safely assume that a meaningful portion of those 36bp is coming from yields and credit spreads; this is rather normal in the Life business, as lower asset yields make it more difficult for the annuity provider to offer competitive rates without sacrificing on margins.

What do you make of Aberdeen wanting to get into the cipr space? I guess competition was always going to come.

Agree, I do see a degree of future margin compression due to new entrants as being highly likely. That said, as others have already pointed out before, this is a business where establishing a credible presence in a given market does take some time; therefore, I personally expect the future revenue growth from increasing annuity sales to more than offset any such margin compression.

After all, that is what is happening in the superannuation industry (for businesses such as IFL), and I expect it to be even even more so in the Life annuity sector.