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Bond appetit

The collapse of the with-profits market in the UK is no secret and figures published recently by the ABI show how dramatic the shift away from WP business has been.

The great staple of the industry has been hit by every possible negative factor from financial scandal to genuine underperformance – underperforming client expectations, anyway. Compensation payments and a conservative attitude to investment risk have left many of the funds which remain open to business with little room to manoeuvre.

Yet it is intrinsically a good way of investing and there is still a part of the market for whom products with these characteristics are ideal. In fact, the supposed with-profits characteristics of better-than-cash compound returns combined with low volatility and some guarantees are exactly what is sought by European investors. This traditionally led to an aversion to equities and a preference for bonds in most European countries. The UK stood out as the exception in following the US model.

More recently, European investors have shown a strong appetite for structured products along the line of the “click” funds offered by ABN Amro or various similar “cliquet” funds offered almost universally in France rather than the higher-risk/return products which sold well in the UK.

European investors were said to have become some of the biggest clients for traded endowment policies at a time when they were selling in the UK at well below the guaranteed value. Some companies are still promoting WP business. Prudential International, for example, has licensed its international Prudence bond in a number of countries across Europe. Norwich Union International saw phenomenal results when it launched offshore WP, now part of its core funds offering.

The table (left) shows that, over the last 10 years, sales of regular-premium WP and unit-linked business have fallen off substantially in the UK. In contrast, sales of non-profit business have risen. The ABI says this reflects the move away from the endowment mortgage repayment method to repayment mortgages.

The single-premium figures show that – domestically at least – the sale of unit-linked policies is growing to replace sales of single-premium WP bonds.

Generally speaking, investors across Europe are still seeking greater exposure to equities, directly or through insurance company links. Although many financial organisations have an investment management capability, the historical context in some countries means they may not have equity or specialist teams. In both situations, third-party managers are playing an increasingly important role. The arrangement is occasionally third-party manager of managers, as exemplified offshore by Scottish Equitable International, but more usually the vehicle is a fund.

The second table (right) shows the fund managers most highly rated by insurance companies which use third-party funds across Europe. It is interesting that the same survey found that the most important factor in the decision to choose a particular fund was not fund performance (21.5 per cent) but brand preference (25.1 per cent). Similarly interesting was that respondents put the importance of sales and account people ahead of marketing or service. The bottom line is that retail financial services is still a people business. Image and personal attention still count.

First quartile


Franklin Templeton

JP Morgan Fleming

Merrill Lynch


Second quartile

ABN Amro

Credit Suisse




Third quartile

Morgan Stanley




Societe Generale

Fourth quartile


BNP Paribas

Julius Baer



Notes: Quartiles by top three rankings across a number of criteria. Within a quartile, companies are in alphabetical order

Source: European Investor Focus


Boulger on Mortgages

Now the general election is behind us there is another important election, or rather referendum, coming up. I doubt that the gilt market would react very much to the result of the general election as the difference in macro economic policy between the two main parties, at least for the first two years after the election, is not big enough to generate wild swings in interest rates.


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