August 13, 2014 / 9:01 AM / in 3 years

UPDATE 2-Legal & General quits ABI insurance trade body

* Rivals say they will continue their ABI membership

* Decision follows merger of ABI unit with IMA

* L&G says large part of business falls outside ABI remit (Adds comment by analyst, background)

By Nishant Kumar

LONDON, Aug 13 (Reuters) - Legal & General Group Plc will quit the Association of British Insurers (ABI) by the year-end, it said on Wednesday, dealing a blow to the trade body at a time of rapid regulatory changes in the UK financial services sector.

Legal & General’s decision follows changes in the mandate of the ABI as a result of the merger with the separate Investment Management Association trade body of the ABI’s Investment Affairs division, which includes its service advising members on how to vote at company meetings.

While rivals such as Prudential, Aviva and Standard Life said they will not follow the path taken by Legal & General, analysts said the decision reflects the diminishing role played by ABI for insurers with large investment management units, even though it has nearly 300 members, accounting for 90 percent of the UK insurance market.

“It feels like a bit of pivotal moment now,” said Tom McPhail, head of pensions research at Hargreaves Lansdown.

“The ABI had been under particular pressures in terms of its membership and its ability to present a consensus view on behalf of its members,” he added.

The active investment management industry is, increasingly, not managed within insurers, making the IMA, which is to be renamed the Investment Association from the beginning of next year, more suitable for players like Legal & General which generated roughly a fifth of its operating profit in the first half of 2014 from its investment management arm.

The company said its engagement with government, regulators and others will be more individually tailored in future, and less suited to uniform representation through one trade body and the ABI tends to concentrate on the general insurance sector, where Legal & General has only limited business.

“A large proportion of our business lines will fall outside of the remit of the ABI given that the business of Legal & General has significantly evolved and in 2014 our business is now as much investment management as insurance,” Legal & General’s chief executive Nigel Wilson said in a statement on Wednesday.

ABI’s director general, Otto Thoresen, said that the trade body was “disappointed” by Legal & General’s departure from the organisation.

“However the ABI’s continuing strong membership represents over 90 percent of the insurance sector,” he said in a statement.

“The great advantage of the ABI is that our members work together across the usual corporate boundaries to tackle issues that are important to consumers and to deliver an agenda for reform. The Board of the ABI believes the industry is at its most effective when working together to respond to legislative and regulatory change.” (Additional reporting by Richa Naidu; Editing by Erica Billingham and Greg Mahlich)

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