Pensions buyout specialist Phoenix has revealed around £32 million of its client money is trapped in Neil Woodford's suspended fund.
The group - which bought out the majority of Standard Life Aberdeen's insurance business last year - said about 2,000 customers have been affected by the saga, which has seen the flagship Woodford equity income fund suspended since early June.
Phoenix chief executive Clive Bannister told PA he supported calls by UK regulators for an overhaul of rules for funds such as that run by Mr Woodford that invest in illiquid assets.
He said while the impact for the group was the "thinnest end of the wedge", given it has a total of 10.1 million customers, he raised concerns over the hit to confidence in the sector.
He said: "The insurance industry has a 250-year-old reputation of looking after people's money... and one doesn't want to see that diminished."
The Woodford fund has been suspended until at least December as managers seek to sell investments in unquoted and harder-to-sell shares.
It was frozen after customers attempted to withdraw hundreds of millions of pounds which the fund did not have to hand.
Details of the Woodford fund impact came as Phoenix reported a 50% leap in half-year operating profits to £325 million, helping shares rise 3%.
But the firm posted a 13% drop in money coming into its open book business as Brexit uncertainty weighs on the retirement market.
The group saw UK gross money inflows drop to £4.8 billion in the six months to June 30 from £5.5 billion a year earlier.
Phoenix said the drop was largely to do with Brexit uncertainty, in particular impacting demand for its wrap products, which saw inflows tumble to £1.5 billion from £2.3 billion a year ago.
The fall in pensions wrap inflows was only partially offset by a 21% hike for workplace pensions - after the Government increased the auto-enrolment minimum contribution from 5% to 8% in April.
It said Brexit worries also hit the group's European open book business, with inflows dropping to £700 million from £1 billion a year earlier as investors held back on big decisions.
Speaking to PA, group finance director Jim McConville said: "People are uncertain.
"They are scratching their heads wondering what to do and when it's the right time to do something."
Phoenix reported an 18% drop in cash generation over the first half, though it said it expects to be towards the upper end of its cash generation target of £600-700 million for the year.
It also said its own Brexit preparations are complete, with £250 million of capital pumped into an Irish subsidiary.
Mr Bannister said Brexit worries were not holding back the merger and acquisition pipeline, which he said "remains strong".
"We are open for business," he added.
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