The decline in regular premium business was the most dramatic, with sales in the first three quarters totalling just £14m, a little more than half the value of sales realised in the comparable period in 2011, when they hit £26.6m (see table, below), according to data compiled by the Association of British Insurers.
Single premium sales, which account for more than 99% of total UK-distributed offshore bond sales in terms of value, stood at £3.46bn at the end of September, a 26.6% drop from the same point last year.
2012 will be the first not to include full-year data from Scottish Widows, which, as CMI International, withdrew from the offshore bond market as of 30 March 2012.
The ABI figures also do not include new business sales data from Generali PanEurope or La Mondiale Europartner, both of which have introduced high-end offshore bond products into the market in the last few months, but which are not British companies and do not contribute sales data to the ABI.
Industry discussion topic
Coming on the heels of 2011’s full-year decline of 7% in total new business sales, the results of the first three quarters of 2012 are likely to be the subject of discussion at the highest levels of the major insurance companies that account for most of this business, which include Axa, Standard Life, Legal & General and Canada Life.
Key among the questions they will be asking – and for which many in the industry say there seems to be no easy answer – is whether the declining sales trend is likely to continue, and if so, for how long.
Some, including Axa Wealth International managing director Mike Foy, believe the worst of the most recent downturn (“we’ve been here before and we’ll be here again in the future, no doubt”) is over, and that the market will benefit from the Retail Distribution Review, which took effect on 1 Jan, and which governs the marketing and sale of investments to British consumers.
“Given a fair wind and some stability in investments markets, the UK offshore market should make a modest recovery in 2013, spurred on by RDR and the fee-based approach that is most suited to offshore life business,” Foy said.
“In addition, we expect that the upside of the UK Government’s rhetoric regarding tax avoidance, which is ultimately a positive driver for the sector and the credibility of more mainstream offshore tax planning, will kick in, to support a general return in investor confidence.”
Volatile climate blamed
Foy echoed the comments of other life industry executives in noting that a number of factors have contributed to the current slump in offshore bond sales, notably including the currently volatile and uncertain global investment climate.
Not only are people wary of putting their savings into funds, cash accounts and other investments that may earn them little if anything – particularly after annual fees have been accounted for – but the sluggish economy also means that there are fewer people who have money from the recent sale of properties or businesses to stash in these traditionally popular and tax-efficient long-term investment products, Foy and others say.
Sean Christian, managing director of Canada Life International, noted that although the “retail segment” of the market has held up relatively well, “as have certain product lines like IHT planning solutions”, the institutional/private banking sector has suffered.
“The banks have seen a tremendous amount of organisational change this year as they structure themselves for a post-RDR world,” he said.
“This, along with time out to train for RDR, has undoubtedly been a distraction for advisers in these organisations, and the feedback received has been that as a result there has been less client contact during the year.
“There has also been a lack of ‘new money’ in the market.
“Sources of new business for these introducers [typically] range from proceeds from business sales through to entrepreneurial dividend receipts, both of which have generally declined over the last couple of years.”
L&G bucks the down trend
Bucking the downward trend in the third quarter was Legal & General International, where sales were up 64%, to £180m, compared with the previous quarter, even though they fell by 7% during the first nine months compared with the same period in 2011 – to £390m from £430m.
Legal & General International (Ireland) chief executive David Fagan said the “fundamental strengths” of offshore bonds, in terms of tax planning, “remain in place, and will underpin growth once investment market confidence recovers”.
He attributed the strong third quarter performance in part to the company’s efforts at increasing access through the use of multiple platforms and discretionary fund managers.
As the chart below shows, total new business sales of single-premium and regular-premium offshore bonds in the first three quarters, at £3.474bn, were the second lowest of the last four years, after 2009. In 2008, which is not shown below, they approached £6bn, at £5.894bn.
Reg prem: £4.62m
Reg prem: £7.87m
Reg prem: £10.88m
Reg prem: £4.384bn
Single prem: £955.81m
Reg prem: £5.01m
Reg prem: £8.67m
Single prem: £1.498bn
Reg prem: £8.66m
Reg prem: £3.811m
Reg prem: £5.28m
Reg prem: £9.29m
Reg prem: £7.10m
Reg prem: £5.792m
|Total single and reg premium sales, separately|| Single prem:£3.017bn
Reg prem: £25.83m
Reg prem: £26.64m
Reg prem: £13.987m
|Total single and reg premium, combined, Qs 1-3||£3.032bn||£4.808bn||£4.742bn||