U.K. Insurer Group Gives Qualified Welcome to Budget

LONDON, Apr 24, 2009 (A. M. Best via COMTEX) -- BTIHF | Quote | Chart | News | PowerRating -- The Association of British Insurers has given a qualified welcome to the U.K. government?s annual budget, praising its provisions on foreign-earned profits, insurance savings accounts and trade credit insurance.

As a result of the budget announced in the House of Commons by Alistair Darling, chancellor of the exchequer, large companies will be eligible for exemptions on dividends related to overseas profits. This move is welcome, the ABI said, in the wake of the planned movement from the United Kingdom of the domiciles of Brit Insurance Holdings plc (LSE: BRE) to the Netherlands and Beazley Group plc (LSE: BEZ) to Ireland. Against the backdrop of economic recession, the government will also seek to make trade credit insurance more accessible to businesses.

But the ABI complained that the decision to lower tax relief on pension savings for people making more than 150,000 pounds (165,000 euros) a year could undermine public confidence in pensions.

Stephen Haddrill, the ABI?s director general, called the budget ?a mixed bag for the U.K. insurance industry.? Haddrill expressed satisfaction that the government has responded favorably to industry opinion on foreign profits and insurance savings accounts. He also acknowledged the heavy financial pressures the government is facing.

Maggie Craig, the ABI?s director of life and savings, said the reduction on pension contribution tax relief on high earners could send ?a worrying message to pension savers that the government is now breaking its contract on tax relief.?

?Far too few people are saving for their retirement, and Britain faces a 2050 demographic time bomb when there will be twice as many pensioners for the working population to support,? Craig said in a statement.

Peter Vipond, the ABI?s director of taxation, said in a statement that ?the dividend exemption on foreign profits should help rebuild the U.K.?s battered reputation as a modern base for global financial service firms.?

The change will take effect in July 2008, said Vipond, who called for a completion of the review of the current rules governing ?controlled foreign companies.? The ABI recalled that the government?s pre-budget report in November 2008 said large and medium-sized companies would be freed from U.K. taxes on foreign dividends.

Describing the taxation of foreign profits as a ?key area for insurers,? Vipond said the U.K. insurance sector pays 2.9 billion pounds annually in taxes.

Vipond also welcomed the decision to make it easier for financial service firms to claim interest-related tax relief. This ?recognizes the unique nature of the sector,? he said.

And Vipond endorsed the improvement in the treatment of insurance savings accounts, which allow insurance customers to make deposits. The change, Vipond said, ?will help people save in a flexible product that addresses their lifetime needs.? These accounts are flexible enough to accommodate holdings in both cash and equities. The new rules, he said, ?should play a part in moving the U.K. to an economy led by investment.?

The government?s announcement that it will be borrowing about 200 billion pounds this year, Vipond said, is of interest to insurers, as potential buyers of the debt. The insurance industry ?will need to see more flexibility in the maturity profile offered,? he said. Vipond also warned that a much higher level of public borrowing could make capital more expensive for the private sector.

Nick Starling, the ABI?s director of general (nonlife) insurance and health, welcomed the decision on trade credit insurance.

?In ensuring that fundamentally healthy companies will get extra support, the government has not tried to second-guess the judgment of insurers,? Starling said in a statement.

The government?s reliance on insurer-conducted risk assessments on trade credit insurance amounts to a vote of confidence in the market, Starling suggested.

?The ABI and trade credit insurers have worked closely with the government to make this scheme possible,? Starling said.

Susan Ross, director at Aon Trade Credit, described the government?s trade credit insurance plan as a positive development. "With demand falling and credit insurers receiving heightened levels of insolvency claims, we are delighted that the government has realized there is a need for support for trade,? Ross said in a statement.

Rebecca Driver, the ABI's director of research and chief economist, suggested the budget had not offered sufficient policy improvements on personal debt and savings.

"It is clear that the economy needs to rebalance if it is to return to sustainable growth,? Driver said in a statement. ?This budget will be judged on whether it can deliver this, without putting at risk any of the fundamentals for recovery.?

(By Robert O'Connor, London editor: Robert.OConnor@ambest.com)

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