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* 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) isasking insurers how they can stay in business after the Britishgovernment scrapped a rule forcing people to buy their mostsuccessful product, an annuity pension.
Finance minister George Osborne stunned Britain's pensionsindustry in March when he announced the rule change, the biggestreform of pensions in a generation to give savers a choice onhow to use money saved during their working lives.
The Bank of England's supervisory arm, the PrudentialRegulation Authority (PRA), said it was how holding talks withlife insurers whose annuity sales were their "unique sellingpoint" as other parts of the business is under pressure.
Sales are likely to be significantly and permanentlyreduced, BoE director of life insurance Andrew Bulley told ameeting of parliament's all party group on insurance andfinancial services on Tuesday.
Life and pensions group Legal & General said afterOsborne's announcement that it expects the individual annuitiesmarket to shrink by around three-quarters after the measuresfreeing retirees from having to buy them come into effect nextyear.
It said it expects the amount of money going into individualannuities 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 likelyimpact of the changes - we are having many conversations withinsurers on this," Bulley told the lawmakers.
Significant potential issues include whether the viabilityof existing business models will be affected, spotting risks innew products companies may have to devise, and the potential formergers among insurers giving rise to new risks, such as a clashof company cultures, he said.
While it was up to insurers to decide on their businessmodels, the PRA will consider what actions the companies musttake to mitigate new risks that arise, Bulley said.
Friends Life Group said in May it was expecting a50-70 percent decline in industry annuity sales and it wouldcreate new investment products to woo retirees.
"For many life companies reacting to a new and fundamentallyaltered strategic and business landscape will be the keychallenge 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)
