Sales of these onshore bonds totalled just £957.3m during the period, compared with offshore single-premium bond sales of £1.004bn. (See charts, below).
The onshore figure for that three-month period, ending on 30 June, was less than half what it had been during the same period a year earlier, when it was £2.039bn, according to the data, which the Association of British Insurers compiles from its members.
The plunge in onshore sales relative to offshore has been equally dramatic on an annual basis over the last few years.
In 2008, sales of onshore bonds to UK investors totalled almost £23.6bn, roughly three times the offshore total that year of £7.8bn. By last year, however, onshore sales had slid to just over £8bn, while the offshore number was £4.7bn – down too, but not by as much, on a percentage basis.
Insurance industry experts blamed the precipitous decline in onshore bond sales mainly on the effects of the Retail Distribution Review, which finally took effect on 1 Jan 2013, after having been first proposed in 2007.
In particular, they say, the RDR’s new transparency requirements have made onshore bonds appear less attractive to many investors than certain other types of investments, such as open-ended investment companies – and offshore bonds.
That there are fewer providers selling into the market than there were five years ago, possibly reflecting the increasingly challenging nature of the business, is also thought to be contributing to the decline in UK offshore and onshore bond sales. As reported here earlier this year, Zurich International confirmed that it had stopped marketing new bond products into the UK market.
Last year, Lloyds Banking Group announced it was closing down what remained of its Clerical Medical International offshore bond sales operation – which sold only into the UK market, rather than internationally – citing “falls in new business levels as a result of intense competition”.
Over the past five years, offshore bonds have managed to retain a following in the UK market, in spite of the RDR effect, because of certain tax-planning features, such as the ability to roll-up investment gains tax-free until such time as the bond’s owner is likely to be in a lower tax bracket, for example, on retirement.
The increased demand for open-architecture investment structures has also favoured offshore bonds, since onshore bonds are typically restricted in their ability to access new investment funds.
At Axa Wealth International, head of proposition Simon Willoughby said the company has managed to buck the downward trend in both offshore and onshore bond sales, with increases of 10% and 52% in the first half respectively. He attributed this to Axa’s having provided advisers with a “fully flexible range of adviser charging options”, as well as its commitment, as a provider, to the market, in which advisers “[otherwise] have limited choice”.
Bright spot
There was one bright spot in the offshore bond sales data for the first half of 2013: a 24% gain in regular-premium sales in Q2, which more than compensated for a 9.4% decline in the category in the first quarter.
However, it was not nearly enough to counter the drop in sales of single-premium bonds in both the first and second quarters, which normally run at least £1bn in a quarter, compared to regular-premium numbers, which normally average in the single-digit millions.
Ex-UK sales ‘booming’
Meantime, outside the UK, offshore bond sales are understood to be booming, although the ABI doesn’t keep track of these sales, nor does any other organisation.
What evidence there is of this boom has emerged mainly in the recent financial statements of the major bond providers, such as Skandia, which reported its net sales of offshore bonds in the first half more than trebled.
In announcing its results in August, Skandia cited “demand for single-premium bond products globally, particularly in South Africa, Europe and Asia”.
Tax rise
One glimmer of hope for those whose in the business of selling offshore bonds to UK-resident investors may lie in the next general election, currently set for 7 May 2015. That’s because the Liberal Democrats, currently in a coalition government with the Conservative party, have been promising to raise certain taxes for the wealthiest UK residents if they are elected again – including capital gains tax, which is now at 28% for top-rate taxpayers, compared with an income tax rate of 45%.
“Raising the capital gains tax will improve the relative attraction of offshore bonds compared to other investment options, such as open-ended investment companies and straightforward investments in stocks and shares,” said Richard Leeson, a former life company executive who recently struck out on his own with a business called Adviser Advocate, aimed at helping financial advisers with technical support.
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UK distributed, new business
ONSHORE bond sales
full years 2008 – 2012
|
2008 |
2009 |
2010 |
2011 |
2012 |
|
£23.587bn |
£12.176bn |
£9.981bn |
£8.866bn |
£8.041bn
|
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Q2, 2011 – 2013
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|
2011 |
2012 |
2013 |
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Q2 |
£2.306bn |
£2.039bn |
£957.3m |
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OFFSHORE bond sales
full years 2008 – 2012
|
2008 |
2009 |
2010 |
2011 |
2012 |
|
£7.796bn
|
£4.648bn |
£6.44bn |
£5.958bn |
£4.744bn |
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UK distributed, new business
OFFSHORE bond sales, by quarter
|
Time period |
2012 |
2013 |
|
Q1 |
Single prem: £1.169bn Reg prem: £ 4.384m |
Single prem: |
|
Q2 |
Single prem: £ 3.811m |
Single prem: |
Source: Association of British Insurers, working from data provided by Aegon, Aviva, Axa, Canada Life, Engage Mutual, Forester Life, Friends Life, HSBC Life (UK), Legal & General, Liverpool Victoria Life, Metlife Europe, National Farmers Union Mutual, Partnership Life Assurance, Police Mutual Assurance Society, Prudential, Royal London, Sanlam, Scottish Friendly, Scottish Widows, Skandia, Standard Life, Wesleyan, Zurich
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