uk offshore bond sales miss targets

Offshore bonds are, of course, extremely popular among UK residents who make use of them to tax-efficiently hold their long-term investments.

In February, offshore life industry executives told International Adviser that exceptionally favourable market conditions for offshore bonds had caused them to set sales targets for their teams as much as 20% ahead of last year’s figures.

However, with the first three quarters of business now in, it’s clear that onshore sales of  both single premium and regular premium offshore bonds are running largely flat with last year’s results, which in turn were significantly (38%) ahead of 2009’s.

Total new business sales of UK distributed offshore bonds in the first nine months of 2011 were 1.37% below the same point a year earlier, according to Association of British Insurers data, at £4.74bn, from £4.81bn. Regular premium new business was 3% higher, but this was offset by the 1.4% decline in single-premium sales, which in terms of volume is more than 150 times the size of the regular premium total.

To be sure, some companies have had an exceptionally good year, at least in terms of new business growth.

Friends Provident International, for example, set out to grow its UK sales and market share at the beginning of the year, according to the company’s UK sales director, Irvine Baxter. The result, he said, was an almost 50% growth in total single premium sales in the first nine months of the year, compared with 2010.

In general, though, flattish sales have been the norm. With the benefit of hindsight, experts say that expectations of the effects of the UK Government’s decision to cap at £50,000 annually the amount people may contribute to their pensions without incurring tax may have been overly ambitious.

“It [the switch towards offshore bonds by those whose pensions contributions are capped] is happening, as clients start to do their tax returns,” says Paul Rutland, Prudential International’s business development manager.

“But it was never expected to be huge, because clearly, we are talking about a relatively small sub-set of the population who would want to pay more than £50,000 a year into a pension anyway.”

For Rutland, the nine-month data is actually “broadly in line with where we would have expected it to be”.

Also not surprised by the figures is Royal London 360 chief executive David Kneeshaw, who noted that the results might have been even lower had not some life products providers been “boosting market share by cutting margins”.

“The UK market continues to be interesting, with wraps growing in importance,” he added. “The overall trend is for fewer serious players to grow more dominant, and the rest to give up.”

FPI’s Baxter points out that single premium bond sales have felt the effects of the economic malaise currently gripping the UK and other European economies.

“Many [would-be single premium bond] clients are unable to crystallise equity from their assets, either because those assets are suppressed in value, or because there are insufficient buyers to create a buoyant market, and banks who are not lending to potential new buyers as much as in the past,” Baxter explains.  

 Source: Association of British Insurers, working from data provided by Aegon, Aviva, Axa, Canada Life, Friends Life, Legal & General, Royal London, Scottish Widows, Skandia, Standard Life, Zurich

First three quarters single premium, UK-distributed new business sales in 2011 v 2010: -1.4%

First three quarters regular premium, UK-distributed new business sales in 2011 v 2010: +3.1%

Total first three quarters UK-distributed new business sales in 2011 v 2011:  -1.37%

 Source: Association of British Insurers