The RDR legislation took effect on 1 January 2013, and according to industry experts, its banning of commissions on the sale of offshore bonds to UK clients has – as many predicted – caused some advisers to recommend them less often than they used to.
New business sales of UK-distributed offshore bonds slid by 13.5% in the 12 months to the end of December, to £4.104bn, according to data compiled by the Association of British Insurers.
This comes on the heels of a decline of 20% in 2012 compared with 2011’s total, which in turn was down more than 7% from the previous year. (See chart below.)
One positive trend that emerged from last year’s otherwise relatively gloomy offshore bond sales was a 4.8% rise in regular premium new business sales into the UK market, to £19m from £18.1m, in spite of a 13.6% slide in the fourth quarter, year-to-year.
But 2012’s regular premium sales had been significantly down from the previous year’s £31.9m, so it was a relatively easy comparison to make. And even in a good year, regular premium sales are only measured in the tens of millions of pounds, as opposed to the billions generated annually in the single premium category.
Of possible concern to industry players, meanwhile, was the fact that new business sales of both single- and regular-premium offshore bonds seemed to collapse in the last three months of 2013. Single premium sales fell 24.5% and regular premium by 27.5% during that three month period.
Among the trends not shown in the statistics was that the share of offshore bonds being sold through platforms doubled in the year to the end of September 2013, according to research by Axa Wealth International, one of the largest providers of offshore bonds to the UK market.
Platforms accounted for 18% of offshore bonds sold in the UK over the 12 months ending in September 2012, but during the same period a year later, to the end of September 2013, they were a conduit for 36% of such sales, the Axa research, carried out by Platforum, revealed.
The research found that even when the RDR effect was discounted, the proportion of offshore bond sales grew by 25% to the end of September 2013, demonstrating, Axa said, that the “ease and efficiency” by which advisers are able to write portfolio bond business on platforms had increased.
AXA Wealth International said its own offshore bond sales grew by 13% in 2013, to £790m. Among the other major UK companies that have broken out offshore bond numbers for 2013, Canada Life International said its rose by 7.5%, with full-year premiums climbing to £792m.
Onshore sales continue south
After the second-quarter onshore bond data came out last year, many in the industry thought 2013 would be the year that sales of single premium offshore bonds finally surpassed those of onshore single premium bonds, which have been in steady decline since 2008, when they totalled £23.6bn. That is, in fact, what happened in Q2, for the first time ever, when the onshore figure of £957.3m was less than half what it had been during the same three months a year earlier, according to ABI data.
In the end, though, the onshore single premium bonds held the line last year – totalling £4.4bn in the 12 months to the end of December, compared with the still slightly lower offshore figure of £4.1bn.
Fewer companies reporting
What is not known, meanwhile, is how a decline in the number of life insurance companies active in the UK market has affected the numbers, since the business they no longer write would, it would normally be assumed, be picked up by the other companies that remain. Since 2012, the number of entities reporting data to the ABI has been falling.
The latest to drop out, as of the middle of last November, was RL360° (formerly Royal London 360°), following a management buyout announced at that time. http://international-adviser.com/news/life/royal-london-360-mbo-announced-by
The ABI data does not include new business sales numbers from certain European insurers, including several domiciled in Ireland and Luxembourg, that sell offshore bond products into the UK market via the EU’s Freedom of Services regulations.
What is not known and what might be of considerable interest to the offshore bond industry, meanwhile, is what the major UK insurers generated in new business sales of offshore bonds to overseas markets, such as Asia, the Middle East and South America.
