Provides financial products for people whose illness has cut their life expectancy

This relatively unknown company has carved out a niche but growing market based on the logic that retiring people with a reduced life expectancy should receive higher annuity payments. Its products are sold to people with health conditions such as multiple sclerosis, diabetes and heart disease, who have an average life expectancy on retirement of 10-15 years compared with 23 years for healthy people. By taking the purchaser’s health into account, the firm says it is able to write annuities that provide customers with 20%-40% more income than alternatives.

The friendly society that became Partnership Life Assurance was set up in 1995 on the strength of this idea, which at the time was far from being standard industry practice, says chief executive Steve Groves.

Crucial to the company’s value were the accumulated data on its policyholders, which allowed it to make more accurate estimates about life expectancy, and in 2005 Phoenix Equity Partners, along with existing and new management, invested £15m in the firm.

A secondary buyout by Cinven in 2008 valued the business at £160m, more than 10 times as much as the Phoenix deal three years earlier. With the help of extra capital from the new owners, the firm has had the resources to continue to build its historical data and product range.

Partnership now sells long-term care plans, life assurance and equity-release schemes as well as annuities exclusively to people whose life expectancy is significantly shortened by medical or lifestyle factors. Groves, who joined as chief financial officer just before the Phoenix buyout, says the company’s success has been driven by focusing on the market it knows, enabling it to exploit its competitive advantage.

Sales of Partnership’s plans are mainly through financial advisers, banks and insurance companies. Aware that the average UK pension pot on retirement is only £17,000, the firm has grown its online presence and in 2010 launched a simpler application process to make its products more easily available to retiring people. New internet ventures last year included payingforcare.co.uk, which gives information on care funding and enables people to talk to financial advisers online, and pensionannuity.co.uk, a web-based guide to annuities.

Groves says that by 2020 the number of Britons aged over 85 is expected to double to 2.6m, driven by new preventive treatments that increase life expectancy and baby boomers reaching retirement. Although these demographic factors, coupled with a decline in defined-benefit schemes, will intensify financial pressure on pensioners, for Partnership they provide significant potential for further growth.

The company has grown rapidly, benefiting from operational efficiencies as both the absolute market size, and Partnership’s share of it, have grown. Profits have increased by 211% a year, from £1.3m in 2007 to £37.7m in 2010.

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Copyright © 2012.
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