In the first of two articles
on this theme, we focus on
the changing face of the UK
cross-border life market in
the noughties. Next month
we will look at the impact of
the decade on the international
market.
l Bull market impact
Largely as a consequence
of the bull market that ran
into the new millennium,
the cross-border life sector
entered the ’00s in a rude
state of health, with levels
of new business in the
year 2000 some 33% ahead
of the levels of 1999, continuing
an upward trend
present since 1995. But
when the markets peaked
in March 2000, heralding
a three-year bear market,
the cross-border life sector
suffered more than other
areas of the insurance
sector, due to its focus on
investment business.
Looking back, it can
be argued that the sector’s
response to the 2000-03
bear market had a profound
effect on the crossborder
life market in the
UK in that, out of necessity,
it forced virtually all
product providers to rethink
many aspects of the
way they had previously
conducted their business.
l Becoming reality
It is hard to imagine now,
but ten years ago the idea of
a cross-border life company
transacting business on a
basis-point-plus annual fee
model – let alone having
discretionary managers as
distribution partners – was
largely unheard of. The
bear market exposed the
fragility of the traditional
independent adviser’s ability
to generate significant
levels of investment-related
business when markets are
either down or volatile, a
pattern that was to repeat
itself in 2009.
This forced cross-border
life offices in the UK
market to seek out wealth
managers holding significant
assets under management
on behalf of wealthy
clients who would benefit
from a tax-efficient wrapper.
As part of this process,
cross-border life firms
found themselves having
to ‘sharpen their pencils’ to
do deals with discretionary
managers in a way they
had not had to do before.
In turn, many providers
were forced to restructure
their single premium prod-
CROSS-BORDER FOCUS THE UK OFFSHORE LIFE MARKET
With the remnants of the first decade of the 21st century now well and truly consigned to
history, it is timely to assess how the cross-border life sector has fared over the past ten
years, and reflect on the key events that have shaped the sector
Through a time of upheaval
800
400
£m 600
200
ucts as well as reassess
the way they viewed the
emergence of profit from
writing such business. As
a consequence, the ’00s
saw a rapid increase in the
levels of UK single premium
business but written
at much thinner profit margins
to the life companies.
In this environment,
cross-border life firms
became leaner and fitter,
and the pricing of many
products became more
competitive and transpar-
UK cross-border new sales ’00 – ’09
Single premium
Regular premium
Total premium
0
’00 ’01 ’02 ’03 ’04 ’05
*Acuity estimates. Source: AILO, Acuity
’06
Simon Willoughby, director,
Acuity Consultants
FEBRUARY 2010 [www.international-adviser.com] INTERNATIONAL ADVISER
’07
’08*
’09*
ent. More providers began
handing back the rebates
they received from fund
managers to the underlying
investor, with ‘factory
gate’ pricing emerging on
offshore products ahead of
their onshore equivalents.
l Portfolio bonds rise
Largely driven by the boom
in discretionary management
business, portfolio
bonds became the default
single premium product
during the decade. In 2000,
portfolio bonds accounted
for 50% of all new single
premium sales in the UK
but by 2008 this figure had
soared close to 90%.
Fettered bonds did not
die out but the influence of
the discretionary management
sector can be seen in
the average premiums for
the two product structures:
by 2009, the average premium
for fettered investment
bonds stood at just
over £60,000 but it was as
high as £350,000 for unfettered
portfolio bonds.
What is more, individual
cases in which investments
were in the multi-millionpounds
category became
a weekly if not daily event
for many of the crossborder
life companies.
l Cash bonds fall
The bear market was also
indirectly responsible for
another phenomenon of
the ’00s – the cash bond.
These were originally conceived
as a way to attract
client money which sat
on deposit during volatile
investment market
conditions, and were later
embraced as a safe haven
from the European Savings
Directive (ESD), designed
to make people pay tax
to their home country on
earnings from savings they
held in third countries,
which impacted directlyheld
bank deposits from
mid-2005.
They went on to become
“ Cross-border
life firms became
leaner and fitter, and
the pricing of many
products became
more competitive and
transparent. Providers
began handing back
the rebates they
received from fund
managers to the
underlying investor
”
23
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