prudential figures show sales through intermediaries dropped by a third between 2001 and 2002
Adviser sales of single premium with-profits bonds have fallen from £9.57bn in 2001 to just £6.38bn for 2002, according to research compiled by Prudential.
The life offices figures show that in 1999, with-profits bond sales through intermediaries amounted to £8bn, increasing in 2001 to a peak of £9.57bn before falling by a third in 2002.
The 33% drop between 2001 and 2002 can be attributed to falling equity returns, falling bonus rates and market value reductions said Icky Iqbal, director at Deloitte. He predicted sales would not recover significantly this year. He added: 'Sales will continue to be weak this year and I'd be surprised if we see them coming close to the figures we saw at the start of the decade in the foreseeable future.'
Despite the poor sales of with-profits life bond business, the overall sales of single premium business held up well, according to research from Tillinghast-Towers Perrin. The actuarial consultants put single premium with-profits sales in 2002 at £18.2bn. According to the company, this is only 10% lower than in 2001 and at similar levels to those seen in 1997 and 1998.
It also notes much press coverage has centred on the closure of with-profits funds. Yet its figures show that of the total £375bn in assets invested in with-profits funds, less than 25% of these are held in funds that are now closed to new business.
However, Iqbal said the relatively strong sales figures may well be due to the closure of Equitable Life.
He added: 'When people left Equitable many went to other providers like Standard Life which would have counted for them as new business. As this effect mainly took place last year I would expect the overall figures to be significantly down for 2003.'
A criticism of with-profit bond products is that bonus rates stand little chance of regaining ground. This is blamed on the cumulative effect the three-year bear market and the switch in asset allocation to favour fixed interest, limiting upside in an equity market rally.
Yet, Tillinghast-Towers Perrin noted reduced equity holdings in with-profits funds are the result of market movements not group's selling assets in the underlying portfolios.
Ian Maidens, principal at Tillinghast-Towers Perrin, said: 'While policy pay-outs on with-profits policies have fallen in recent years, they have typically fallen by significantly less than equivalent unit linked and unit trust based investments. As a result, payouts on maturing policies are still above underlying asset shares in many funds.'
Maidens said underlying asset shares for long-term with-profits policies are likely to continue to fall for a period as a result of the transition from the high-inflation, high returns of the 1980s and early 1990s to the current low inflation environment.
He added those investors entering the market now would not suffer unduly from recent poor market conditions.
18 new entrants featured
Recommended cash offer
Latest news and analysis
Second London acquisition in three years
Partner Insight: Continuing the Architas education series for clients.