That said, offshore life insurance industry executives say the exceptionally favourable market conditions in the UK right now for offshore bonds have meant that sales this year for some companies have the potential to be correspondingly higher than at any time in recent memory – and many sales targets are reflecting this.
Sources tell International Adviser they are up to 20% ahead or more above last year’s figures in some cases. (See chart, below, for total annual UK offshore bond sales by year beginning in 2007, as compiled by the Association of British Insurers from data provided by its members.)
At least one provider is thought to have tasked its sales team with generating £1bn of new business, as the combined impact of reduced maximum tax-relieved pension contributions, higher personal taxes and the RDR buoy the market.
However, the highly competitive nature of the mature UK market also means that other companies will not have significantly increased their targets in 2011 due to a determination to focus on profitability, Acuity Consultants managing director Bryan Low, an expert observer of the offshore life market, pointed out.
Prudential International is among the companies that are taking this approach, according to its head of investment marketing for retail life and pensions, Steven Whalley. For this reason, he said, “you might not find Prudential at the top of this year’s new-business writing charts.”
Of several factors contributing to the agreeable market climate, the UK Government’s decision to cap at £50,000 annually the amount people may contribute to their pensions without incurring tax is seen as by far the most helpful.
Also increasingly important as 1 Jan 2013 approaches is the fact that more than many other investment products, offshore bonds already have fee structures in place that are already compliant with the Retail Distribution Review, the package of new regulations governing Britain’s financial services industry that takes effect on that date, according to Friends Provident International sales director Bob Pain.
Standard Life International sales business development manager Ian Searle said advisers and their clients are increasingly aware that offshore bonds can be useful in helping to tax-efficiently save money for school and university fees, since gains roll up tax-free. “At the moment this is very topical, with the news about university fees going through the roof.”
“All the conditions are right for a very strong UK offshore bond market in 2011, driven by the compliance-based tax planning appeal of offshore bonds to advisers and their HNW clients in the face of rising UK personal taxation and a dramatically lower ceiling on tax-advantaged pensions contributions,” Low said.
He estimated that the UK offshore bond market’s overall growth in 2011 “could be in excess of 20%”.
But new business margins and profitability “will suffer under competitive pressures, as companies struggle to differentiate their products on any basis other than price”, Low added.
“The UK offshore bond market remains very competitive, with resultant narrow margins leading to relatively low profitability on new business written, particularly on large cases.”
Low said final results for last year are still being compiled, and as a result, accurate market size/growth figures will not be available until sometime in February.
Nevertheless, other industry sources say sales of offshore bonds to UK investors last year are thought to have been 50% ahead of the total sold in 2009 – which had been an admittedly dire year for most companies. This compares with growth in the market in a ‘normal’ year of around 5% to 10%, they note.
As a result, although generalisations are difficult in a market comprised of so many different sizes and types of business, life company executives, echoing Low’s estimate – are understood to be telling their sales staffs to be aiming for increases in 2011 of between 5% and 20% or more, depending on the company, its current market share and its maturity.
Like many of his colleagues, Mark Hayhoe, head of sales development of pre-retirement products at Aegon, did not wish to be quoted on Aegon’s 2011 sales targets. However, he noted, “this year, unlike some others, you can see genuine reasons for sales forecasts to be strong, because genuinely, more people are thinking seriously about moving abroad at some point, and many people are affected by the change in the pension legislation, which has left them looking for alternative investment vehicles for the money they now can’t put into their pensions.”
What is more, Hayhoe pointed out, even though much is being said about the expected growth in 2011 coming from the affluent end of the UK market – mainly because people have to be relatively wealthy to bump up against the new £50,000 pension cap – Aegon believes the mainstream investment market is also expected to do better in 2011.
This is because “offshore bonds are becoming more mainstream, and are being offered on more platforms,” he said. “I don’t think their profile has ever been higher. We’re seeing articles on offshore bonds in the Sunday Times Money section, for example.” Legal & General International (Ireland) CEO David Fagan agreed: “We believe that more IFAs are seeing offshore bonds as a more mainstream planning tool.”
Many companies say changes in their products and/or the way they are marketing them are also expected to boost their share of the market in 2011 – which they say is being reflected in their sales targets.
Friends Provident International, for example, is enthused by the arrival from Axa Wealth International of Irvine Baxter, a seasoned life industry veteran, as UK regional sales director, and the fact that its telesales team of seven will be one year more experienced and so will be more productive as a result, according to Pain. Aegon, meanwhile, has added a so-called ‘portability feature’ to its flagship offshore bond, the Wealth Management Portfolio, which enables investors to maintain the tax efficiency of their savings if they have to move between the UK, France, Spain or Italy.
|Year||UK (total sales, in £bn)|
|2010 (data for Q1 -Q3 only)||4.78*|
Source: Association of British Insurers