Recent announcements about Standard Life's launch of an open-architecture contract and Legal and General's launch of a new international life company, based in Ireland by end of the year, herald major changes to the current offshore landscape.
These development coincide with record levels of offshore bonds sold into the over £7bn last year (source ABI).
They also serve to challenge the view that offshore is a niche product and that providers are smaller companies trading from badly regulated jurisdictions.
Is it really a niche market? If it is, it is obviously a large niche! Offshore life bonds meet some important end-customer needs. These include helping with inheritance tax planning, retirement planning (where individuals or companies are either unwilling or unable to contribute into pension plans), planning for the ever-increasing numbers of geographically mobile individuals, companies looking for returns greater than just deposit accounts or individuals who are simply attracted to tax advantages and superb investment choice.
And what about the concern that providers are not major players? Legal & General’s anticipated entry means every major insurance company now has an offshore offering. Brand names coupled with strong financial backing all make offshore investment even more attractive. A valuable part of investor protection is the company’s financial strength. But what about the regulatory environment? Well, again there is a compelling story to tell on that score.
These major companies are based in well-run, well-regulated, jurisdictions such as Dublin or the Isle of Man, which are the most common locations. In the case of Dublin-based companies, they are covered by EU legislation - like a UK company). The Isle of Man companies are covered by equivalent legislation. This (legislation) dictates requirements to hold spare capital (solvency), the need to account for client assets separately to those of the company and the need to report activity and financial position to the Regulator.
Advisers often, rightly, think about what would happen in the worst-case scenario. And, once again, it is often believed that an offshore contract puts the client in a worst case than if they were invested in a UK company. On the contrary. For individuals who are habitually residence in the UK with a policy issued by an EU insurer and for some of the Isle of Man companies, the provisions of the Financial Services Compensation Scheme applies.
So, a product offered by a company with a financially strong, branded parent, trading from a well-regulated jurisdiction, with the same or similar legislation to UK companies, into an attractive and growing niche, makes offshore a nice place to be!
Steve Whalley is head of marketing at Aegon Scottish Equitable.
The views expressed are those of the author and not those of the company he represents.IFAonline
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