* UK regulator in talks with insurers over annuities fallout
* Insurers see sales of annuities shrink by up to 75 percent
* Companies examining viability of their business models
LONDON, July 1 (Reuters) - The Bank of England (BoE) is asking insurers how they can stay in business after the British government scrapped a rule forcing people to buy their most successful product, an annuity pension.
Finance minister George Osborne stunned Britain’s pensions industry in March when he announced the rule change, the biggest reform of pensions in a generation to give savers a choice on how to use money saved during their working lives.
The Bank of England’s supervisory arm, the Prudential Regulation Authority (PRA), said it was how holding talks with life insurers whose annuity sales were their “unique selling point” as other parts of the business is under pressure.
Sales are likely to be significantly and permanently reduced, BoE director of life insurance Andrew Bulley told a meeting of parliament’s all party group on insurance and financial services on Tuesday.
Life and pensions group Legal & General said after Osborne’s announcement that it expects the individual annuities market to shrink by around three-quarters after the measures freeing retirees from having to buy them come into effect next year.
It said it expects the amount of money going into individual annuities to shrink to around 2.8 billion pounds ($4.6 billion) a year from 11.9 billion.
“Insurers and the PRA are currently assessing the likely impact of the changes - we are having many conversations with insurers on this,” Bulley told the lawmakers.
Significant potential issues include whether the viability of existing business models will be affected, spotting risks in new products companies may have to devise, and the potential for mergers among insurers giving rise to new risks, such as a clash of company cultures, he said.
While it was up to insurers to decide on their business models, the PRA will consider what actions the companies must take to mitigate new risks that arise, Bulley said.
Friends Life Group said in May it was expecting a 50-70 percent decline in industry annuity sales and it would create new investment products to woo retirees.
“For many life companies reacting to a new and fundamentally altered strategic and business landscape will be the key challenge over the next few years,” Bulley said.
Big British life and pensions companies also include Aviva , Prudential and Standard Life. (Reporting by Huw Jones; Editing by Pravin Char)