Demand for offshore life products continues unabated, with the latest statistics from the Associatio...
Demand for offshore life products continues unabated, with the latest statistics from the Association of British Insurers showing new business in the first quarter of 2007 grew significantly. The year-on-year growth rate was an impressive 34.6% for single premiums, and this was on top of the great increases in sales recorded in previous years.
The figures should be a cause for celebration for the international life industry but a word of caution may be necessary. It is now thought the last Budget could have a bigger impact on sales going forward than first anticipated.
The concern centres on the Government's clampdown on commission rebates. Under the changes, if an IFA rebates commission to the policy holder of a bond, the bond's premium is over £100,000, and the bond is encashed within three years, the policy holder has to declare the commission rebated as part of their gain on the bond - making such arrangements much less appealing.
How widespread this practice has been is anyone's guess. International Investment first warned advisers HMRC could tighten up its rules relating to commission rebates in October 2005 - at a time when the practice was thought to be on the rise.
There is no precise information available to show how many policies have been sold as a result of commission rebating but Steven Whalley, marketing manager at Aegon Scottish Equitable International, says it has been suggested about 10%-15% of new business could have been written on this basis. This figure can only be an estimate because if an IFA chooses to sell a client a bond, charge a fee, and rebate the commission, as a way of mitigating tax for the client, all the life office receives is an application for a bond, invested in cash, with no knowledge of the agreement between the IFA and the client.
Life offices who have seen a great deal of business coming in on a cash-only basis, may now have reason to be concerned that they have been overexposed to this scheme. However, policies sold on this basis tend to be cashed in after a year, and therefore are not the type of business a life company would want to attract anyway. These changes draw a line in the sand and give life offices the opportunity to go after longer term, more lucrative business.
So while new business figures may be impacted as a result of the Budget change, the potential for growth in the international life industry remains. As David Healy, managing director of Scottish Equitable International points out in our special interview on page 18, the offshore market is slowly closing in of the onshore market, and there are still a great deal of IFAs who are not selling offshore products. If International Investment's London Forum, held last month, is anything to go by, interest in this market is strong and will continue to grow.
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