The amount of with profits business fell 15% in 2022 as the gradual decline of the sector was accelerated by the increase in interest rates during the year.

With profits business in-force fell from £248bn to £210bn during the year, according to AKG’s annual UK Life Office With Profits Reports.

The Fintel-owned ratings provider said the fall reflected the sector's decline as historic business runs off but also lower liability values as valuation interest rates increased.

The report published today showed that, measured by net premiums earned, the top 10 companies accounted for around 97% of the with profits market in 2022, with Prudential continuing to dominate the market.

Prudential's net premiums earned increased 80%, up from a 69% increase in 2021, while Wesleyan and NFU both reported gains.

Showing some resilience, the total market size in 2022 grew by 22% from £5.6bn net premiums earned in 2021.

Net with profits claims also increased during the year to a total of £20bn, up from £16.4bn in 2021.

Gary Bown, AKG chairman and lead author of the reports, said: “Despite the acknowledged evolution of the market in recent years, there’s still a huge amount of client money wrapped up in with profits funds and hence a significant universe of funds for analysis, either open or closed.”

He said industry issues, including the introduction of Solvency UK and Consumer Duty along with ESG factors, were impacting on the operation of with profits funds.

For that reason, he said, it's vital that providers, advisers, Paraplanners and trustees kept up to speed with the data to adequately assess the market and make informed decisions.

AKG’s UK Life Office With Profits Reports have been published annual for 25 years. The 2023 series of reports contain analysis and assessments of 195 sub-funds within 64 funds from 21 firms that were active in the UK market at the start of January 2024.

The reports cover providers whose with profits funds exceed £150m, supplemented by smaller companies and friendly societies operating in the intermediary market.