UK Unit-linked market 2005 - etude de marche

TABLE OF CONTENTS

CHAPTER 1 THE UK LIFE ASSURANCE 2005 REPORT 14

This briefing is part of the overall UK Life Assurance 2005 product suite 14

Report methodology for the UK Life Assurance 2005 product suite 15

CHAPTER 2 INTRODUCTION 16

What is this report about? 16

Who is the target reader? 16

How to use this report 16

Sources of data 17

The products explained 17

CHAPTER 3 INSURANCE PRODUCTS IN THE COLLECTIVE INVESTMENT MARKET 20

Introduction 20

Key findings 20

The collective investments market has begun to recover following several years of decline 21

The structure of the UK life market has changed considerably over the last four years 22

The UK life related savings market has declined by more than the unit trust and OEIC market 22

Tax advantages and commission rates of life-based investment products continue to make them popular with advisers and investors 23

With-profits products were historically the mainstay of the life market 25

Single premium products have shown stronger recent growth than regular premium 26

The life-based investment market has been rocked by the collapse of with-profits 27

The prolonged bear market has hit With-Profits Bonds hard 27

Insurers� response to the equity downturn has added to the negative publicity 28

The decline of with-profits has been partially offset by growth in Unit-Linked Bonds 29

The product performance of the remaining with-profits providers has generally been strong 30

Realistic reporting has tightened capital constraints for many with-profits providers 31

CHAPTER 4 UNIT-LINKED MARKET SIZE AND GROWTH 33

Introduction 33

Key findings 33

Growth in Unit-Linked Bonds has driven the overall unit-linked market 34

Unit-Linked Bond new business sales now dominate the life related investment bond market 35

The key driver behind the growth in Unit-Linked Bonds has changed 36

Other life products have switched into unitized form 37

Unit-Linked Bonds have become a favorite among cautious and sophisticated investors 38

High commissions may have played a part in the success of unit-linked products 38

IFAs� positive view over Unit-Linked Bonds has begun to dwindle 39

Possible FSA investigation may have a negative effect on the market 40

New business sales of regular premium Unit-Linked Endowments show no sign of recovering 41

Mortgage Related Endowment sales have continued to decline 42

Savings Related Endowment sales have stabilized 43

CHAPTER 5 THE DISTRIBUTION LANDSCAPE 45

Introduction 45

Key findings 45

IFAs play a key part in driving life related investment sales 46

Growth in the Unit-Linked Bond market is being increasingly driven by IFAs 46

IFAs have switched their focus from With-Profits Bonds to Unit-Linked Bonds 48

Bancassurance Unit-Linked Bond new business sales have grown strongly 49

There will be no new business growth outside of the core distribution channels 49

Mortgage endowment sales are negligible through all channels 49

Bancassurers have increased their share of the Savings Related Endowment market 52

CHAPTER 6 COMPETITIVE DYNAMICS 54

Introduction 54

Key findings 54

HBOS and Zurich have the highest total unit-linked new business levels 56

Top competitors in the single premium market have experienced strong growth 57

The unit-linked market is concentrated around the top ten providers 57

A small group of providers are closing the gap on the larger players 58

Only Aviva and Lloyds TSB have experienced both a short and long-term decline in sales 59

Strong bancassurance sales and a focus away from with-profits have boosted HBOS Unit-Linked Bond sales 61

AIG�s focus on corporate business has protected it from the fall in the market 61

Zurich�s traditional focus on unit-linked business has left it well-placed to benefit from the upturn in the market 61

Hartford�s service based approach is likely to ensure it receives a warm welcome from IFAs 62

What remains of the regular premium unit-linked market is dominated by Zurich 63

The regular premium market for unit-linked products has become increasingly concentrated 63

Only one regular premium unit-linked provider has achieved both strong short and long-term new business growth 65

Zurich�s traditional focus on unit-linked products sees it dominate the regular premium market 67

2004 has seen continued bad press for mortgage endowment competitors 67

CHAPTER 7 THE FUTURE DECODED 68

Introduction 68

Key findings 68

Forecast assumptions for market size 70

Datamonitor�s report methodology 71

There are two apparent impediments to the continued growth in unit-linked new business 73

Growth in the life related investment market is expected to outpace growth in the protection market 75

Base Scenario: Unit-linked new business will continue to grow but at a slower pace 76

Single premium base scenario: Unit-Linked Bond rate of growth will slow as funds swell 76

Single premium distribution forecast: IFAs continue to dominate the market 78

Regular premium base scenario: A core group of investors will support Savings Endowment sales, Mortgage Endowment new business will remain flat 79

Alternative scenario: Increased competition from alternative life products will dent unit-linked new business growth 81

Single premium alternative scenario: Unit-Linked Bonds growth rate will be subdued by the growing popularity of Distribution Bonds 81

Regular premium alternative scenario: Savings Endowment new business levels will continue to decline 83

CHAPTER 8 APPENDIX 86

Forecasting methodology 86

Regression analysis is unsuitable for Life and Pensions forecasting 86

Datamonitor uses a qualitative forecasting methodology for Life and Pensions 86

Supplementary data 88

Insurance products in the collective investment market 88

Market size and Growth 91

Distribution 94

Competitive dynamics 97

Forecasts 99

Definitions 101

SynThesys Life Business Line Definitions 101

Single premium policy 101

Regular premium 102

New business 102

Life based investment products 102

Life Product Definitions 103

Single Premium Life 103

Annual Premium Life 105

ABI definitions of distribution channels 107

Further reading 108

SPP writing team 109

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LIST OF TABLES

Table 1: HBOS and Zurich have the highest total unit-linked new business levels 56

Table 2: Single premium �other-linked� new business 1999-2003 60

Table 3: Regular Premium Unit-Linked Endowments by competitor 1999-2003 66

Table 4: Total equity based saving market 2001-2004 gross 88

Table 5: Unit trust and life related savings new business non-APE 2001-2004 89

Table 6: Total With-Profits products and unit-linked products new business 2000-2004 89

Table 7: With-Profits Bond and Unit-Linked Bond new business 2001-2004 89

Table 8: UK Life new single and regular new business 2000-2004 90

Table 9: Investment fund returns by five year and ten year investment of �10,000 investment 90

Table 10: Savings and protection new business market growth 2000-2004 91

Table 11: Total With-Profit and unit-linked new business 2000-2004 91

Table 12: Unit-Linked Bonds vs FTSE 2000-2004 92

Table 13: Unit-Linked market growth by product type, 2000-2004 92

Table 14: Difference between IFA positive and negative opinions of short-term growth in With-Profit and Unit-Linked Bonds 93

Table 15: Saving and mortgage endowments new business 2000-2004 93

Table 16: Total Unit-Linked and With-Profit endowments new business 2000-2004 93

Table 17: Unit-Linked Bond new business by distribution channel 2000-2004 94

Table 18: Unit-Linked mortgage endowment new business by distribution channel 2000-2004 95

Table 19: Unit-Linked savings endowment new business by distribution channel 96

Table 20: Single premium Unit-Linked new business, CAGR and STGR by top 10 competitor 97

Table 21: Single premium other linked new business top 5 vs. rest of market 1999 - 2004 97

Table 22: Regular premium endowment top 5 competitors by new business vs. rest of market 98

Table 23: Regular premium new business, CAGR and STGR by competitor 98

Table 24: Unit-Linked and With-Profit bond forecast new business and market share (based on base scenario forecasts) 99

Table 25: Forecast total protection and total savings new business 2004-2009f 99

Table 26: Datamonitor�s base scenario: Unit-Linked Bonds, savings endowment and mortgage endowment new business forecast 2004-2009f 100

Table 27: Unit-Linked Bonds distribution forecast 2004-2009f 100

Table 28: Alternative scenario: Unit-Linked Bonds, saving endowments and mortgage endowment new business forecast 2004-2009f 101

LIST OF FIGURES

Figure 1: Bundling Structure of the UK Life Assurance 2005 report 14

Figure 2: UK Life Assurance 2005: report methodology 15

Figure 3: Total equity savings market has recovered in 2004 as unit trusts, OEICs and Unit-Linked Bonds experienced growth in new business premiums 21

Figure 4: There has been a small recovery in the savings side of the life market in 2004 22

Figure 5: Life related savings have fallen by more than unit trusts and OEICs 23

Figure 6: With-Profit products share of total life investment and protection new business has declined dramatically since 2000 25

Figure 7: While single premium life products have picked up, regular premium life products continue to slump 26

Figure 8: With-Profit Bonds have failed to recover in line with the market 28

Figure 9: Unit-Linked Bonds have become the key driver in the single premium market 30

Figure 10: Current 10 year With-Profits Bonds have generally produced higher returns than the average UK managed fund 31

Figure 11: Growth in Unit-Linked Bond new business has driven the growth in the overall unit-linked market 34

Figure 12: Sales of Unit-Linked Bonds have now overtaken those of With-Profits 35

Figure 13: From 2002 new business growth has been driven by the search for an alternative to with-profits products rather than the level of the FTSE 37

Figure 14: IFAs� growth outlook for Unit-Linked Bonds has begun to deteriorate in recent quarters 40

Figure 15: The rate of decline in regular premium unit-linked products has leveled out in recent years 41

Figure 16: Unit-Linked Mortgage Endowments new business levels were negligible in 2004 42

Figure 17: Unit-Linked Savings Endowments new business levels have been more stable than With-Profits Saving Endowments 43

Figure 18: IFAs� product preference and tax advantages play a key part in driving life related product new business 46

Figure 19: Growth in the Unit-Linked Bond market has been driven by the IFA channel 47

Figure 20: IFAs have increased their share of the Unit-Linked Bond market 48

Figure 21: Unit-Linked Mortgage Endowment sales have fallen across all distribution channels 50

Figure 22: Distribution of Unit-Linked Mortgage Endowments has become increasingly erratic as the market has shrunk 51

Figure 23: The IFA channel continues to dominate the Unit-Linked Savings Endowment market 52

Figure 24: Bancassurers substantially increased their share of the Unit-Linked Savings Endowment market in 2004 53

Figure 25: There has been little concentration among the top-five unit-linked providers between 1999-2003 58

Figure 26: A cluster of small providers are rapidly increasing their market share of unit-linked business through 1999-2003 59

Figure 27: The efficiency of service has often been cited as the key driver of IFA provider opinions 63

Figure 28: The regular premium market has consolidated considerably between 1999-2003 64

Figure 29: Only one provider in the regular premium market has achieved both positive short and long-term growth 65

Figure 30: Datamonitor scenario weightings 70

Figure 31: There appears to be little which will upset the current drivers of unit-linked growth 73

Figure 32: Unit-Linked Bond share of single premium new business will peak at 62% 74

Figure 33: The gap between savings and protection new business is expected to increase between 2004-2009 75

Figure 34: Base scenario forecasts continued growth in Unit-Linked Bonds but at a slower pace 76

Figure 35: Base scenario forecasts IFAs to increase their dominance of the Unit-Linked Bond market 78

Figure 36: Base scenario forecasts a marginal increase in Savings Endowments as hard core of investors support the product 80

Figure 37: Alternative scenario: Unit-Linked Bonds new business growth is weakened 82

Figure 38: Regular premium alternative scenario: Savings endowment new business fails to recover 84

Figure 39: �Quasi-Delphi� forecasting technique 87