UK Distribution Landscape Overview 2006

TABLE OF CONTENTS EXECUTIVE SUMMARY 3 Distribution Landscape 3 Snapshot of distribution channels 3 Provider landscape 4 Distribution Trends and issues 4 The Future Decoded 5 CHAPTER 1 UK DISTRIBUTION LANDSCAPE PRODUCT SUITE 19 UK Distribution Overview 2006 19 UK IFAs 2006 20 UK Bancassurance 2006 20 CHAPTER 2 INTRODUCTION AND METHODOLOGY 22 Scope of the report 22 Data 22 Report structure 23 CHAPTER 3 DISTRIBUTION LANDSCAPE 24 Introduction 24 Key findings 24 Channel definitions for the distribution of life and pensions products, 2006 onwards 25 IFAs still dominate the life and pensions distribution market in the UK but bancassurers have gained market share 27 Pensions account for 58% of IFA sales in the total life and pensions market in 2005 28 The single and regular premium pensions markets continue to show positive growth, reflected in increased sales through IFAs 29 Personal pensions accounted for almost half of total IFA single premium pensions business in 2005 30 IFAs have almost quadrupled sales of SIPPs since 2004 30 Group personal pensions account for 56% of IFAs’ regular premium pensions new business 31 Single premium sales dominate the life market, but bancassurancers have overtaken IFAs in regular premium sales 32 Unit linked bonds remain the leading product in IFAs’ single premium sales as with-profits bonds continue to decline 33 Term assurance accounts for more than three quarters of regular premium sales through IFAs 34 Unit trusts and OEICs sold by IFAs 36 Unit Trust and OEIC sales are vital to IFA business 36 IFAs now account for over three quarters of unit trust and OEIC sales in the UK 38 Life products account for 84% of bancassurance sales in the total life and pensions market in 2005 39 Bancassurers have seen more growth in single premium life than regular premium life sales in the last two years 40 Unit-linked bonds and ditribution bonds sales via bancassurance have risen in 2005 41 Contrary to market trends and expectations, bancassurers have significantly increased sales of mortgage related products in 2005 42 Bancassurers are selling more regular premium pensions than single premium pensions 43 Stakeholder pensions remain by far the most popular form of regular premium pension in bancassurance 44 Single-tie distribution is on a decline while non-intermediated sales have shown moderate growth over the last five years 46 Regular premium life is the most important product category for the non-intermediated distribution channel 47 Single premium pensions are the only product category where the single-tie distribution channel has experienced growth 48 The non-intermediated distribution channel has experienced slight growth in sales of regular premium pensions in the last five years 49 Data Tables 50 CHAPTER 4 SNAPSHOT OF DISTRIBUTION CHANNELS 58 Introduction 58 Key findings 58 The UK IFA market is comprised of a varied mix of small, medium and large sized firms 59 The total number of IFA firms in the UK has increased since 2005 59 The number of network member firms has declined by almost 20% since 2003 60 Total IFA firm turnover increased by 9.6% between 2005 and 2006 61 Sesame has recovered the ground it lost in 2005, and retained its position as the largest UK IFA network 63 The top 20 IFAs have increased their market share, but still account for less than a third of total turnover 64 The largest bank is not automatically the largest bancassurer 65 Barclays is the bank with the largest branch network in the UK but it’s not the largest bancassurer 65 HBOS is the dominant player in the UK bancassurance market 67 Life and Pension advertising expenditure in bancassurance 68 Non-traditional distributors originate from various industries 69 From ASDA to Virgin - all want a share of the UK financial market 69 Retailers have continually widened their financial services offering 70 Life and Pension advertising expenditure in non-traditional distribution 74 Data Tables 76 CHAPTER 5 PROVIDER LANDSCAPE 79 Introduction 79 Key findings 79 The life and pensions market in the UK is highly competitive 80 Depolarisation has led to a diversification of distribution channels 80 Norwich Union has the strongest market share position in the UK 81 In 2005 life insurers spent more than GBP40m on advertising 82 HBOS recorded highest sales of single premium life products in 2005 84 Legal & General recorded highest sales of regular premium life products in 2005 85 Aviva recorded highest sales of single premium pension products in 2005 86 Standard Life recorded highest sales of regular premium pension products in 2005 87 An increasing number of providers offers products online 88 Data Tables 89 CHAPTER 6 DISTRIBUTION TRENDS AND ISSUES 95 Introduction 95 Key findings 95 Depolarization has not had the effect originally anticipated 96 IFAs do not see a radical shift following depolarization and remain confident 96 Depolarization may benefit the bancassurers on the longer term 97 Most non-traditional distributors offer products from one provider 97 Providers seek to expand and diversify their distribution strategies 98 FSA sets out priorities for its review of UK retail distribution 100 The FSA wants to be the catalyst for change in retail distribution 101 IFAs prepare to defend their business model 101 FSA pulls new products under its control 101 Non-traditional distributors struggle, with varying success 102 In non-traditional distribution the customer initiates the purchase 103 Some experts question the suitability of non-traditional distributors 103 Providers seek to explore the potential of worksite marketing 104 Despite promising potential, opinions among experts are divided 105 CHAPTER 7 THE FUTURE DECODED 107 Introduction 107 Key findings 107 IFAs will remain the dominant life and pensions distribution channel in the UK 108 Multi-tie distribution will see strong single premium pensions sales 109 The regular premium life market will decline in the next five years 110 SIPPs are expected to drive IFAs’ single premium pensions sales 111 IFAs account for the vast majority of regular premium pensions sales 112 Data tables 113 APPENDIX 118 Definitions 118 Single premium policy 118 Regular premium 118 New business 118 Wrap accounts 118 Life based savings products 119 Life Product Definitions 119 Single Premium Life 119 Annual Premium Life 121 Pension product definitions 123 ABI definitions of distribution channels 124 Matrix-Data 125 Notes to IFA Firm categorizations 127 Forecasting methodology 128 Regression analysis is unsuitable for Life and Pensions forecasting 128 Datamonitor uses a qualitative forecasting methodology for Life and Pensions 128 Further reading 130 Savings and Investments SPP 130 Life and Pensions SPP 130 Financial Advice Market SPP 131 SPP writing team 132 LIST OF TABLES Table 1: Total UK life and pensions sales by segment, 2000-2005 37 Table 2: Total UK IFA life and pensions sales by segment, 2000-2005 37 Table 3: Total life and pensions market segmented by distribution channel, 2001-2005 50 Table 4: Total life and pensions sold through the IFA channel, 2000-2005 51 Table 5: Sales of life new business premiums through the IFA channel, segmented by single and regular premium, 2000-2005 51 Table 6: Sales of pensions new business premiums through the IFA channel, segmented by single and annual premium, 2000-2005 52 Table 7: Sales of life new business single premiums through the IFA channel, segmented by product type, 2004-2005 52 Table 8: Sales of life new business regular premiums through the IFA channel, segmented by product type, 2004-2005 53 Table 9: Sales of pensions new business single premiums through the IFA channel, segmented by product type, 2004-2005 53 Table 10: Sales of pensions new business regular premiums through the IFA channel, segmented by product type, 2004-2005 54 Table 11: Total gross retail sales of unit trusts and OEIC products, 2004-2005 54 Table 12: Total life and total pensions business sold through the bancassurance channel 2001-2005 55 Table 13: Sales of life products through the bancassurance channel 2001-2005 55 Table 14: Single premium life product sales through the bancassurance channel segmented by product type 2004 - 2005 56 Table 15: Regular premium life product sales through the bancassurance channel segmented by product type 2004 - 2005 56 Table 16: Sales of pension products through the bancassurance channel 2001 - 2005 56 Table 17: Regular premium pensions product sales segmented by product type 2004 - 2005 57 Table 18: Single premium pensions product sales segmented by product type 2004-2005 57 Table 19: Network members by number and by turnover, 2002-2006 61 Table 20: Distribution status of top banks and building societies, 2006 66 Table 21: Life and Pension advertising expenditure in bancassurance 2005 68 Table 22: Life insurance and savings products offered by Tesco 71 Table 23: Life insurance and savings products offered by Sainsbury’s 71 Table 24: Life insurance and savings products offered by the Post Office 72 Table 25: Selection of other non-traditional players in financial services 73 Table 26: Life and Pension advertising expenditure in non-traditional distribution 2005 75 Table 27: Total number of IFA firms in the UK segmented by type, 2005-2006 76 Table 28: Gross annual turnover of IFA firms segmented by type, 2005-2006 77 Table 29: Average annual turnover per IFA firm, 2005-2006 77 Table 30: Top 20 IFA firms (including networks) by turnover, August 2005 to July 2006 78 Table 31: Life and Pension advertising expenditure of UK insurers 2005 82 Table 32: Major UK insurance companies’ online product offer 2006 88 Table 33: UK Top 5 providers’ new business sales of life and pensions products 2005, GBPm APE 89 Table 34: New business sales of single premium life products 2005, GBPm APE 90 Table 35: New business sales of regular premium life products 2005, GBPm APE 91 Table 36: New business sales of single premium pension products 2005, GBPm APE 92 Table 37: New business sales of regular premium pension products 2005, GBPm APE 93 Table 38: UK Life and Pension advertising expenditure, 2001-2005, GBPm 94 Table 39: Total life and pensions market segmented by distribution channel, 2006f-2010f 113 Table 40: Single premium life market segmented by distribution channel, 2006f-2010f 114 Table 41: Regular premium life market segmented by distribution channel, 2006f-2010f 115 Table 42: Single premium pension market segmented by distribution channel, 2006f-2010f 116 Table 43: Regular premium pension market segmented by distribution channel, 2006f-2010f 117 LIST OF FIGURES Figure 1: Bundling structure of UK Distribution Landscape 2006 19 Figure 2: Report structure of the UK Distribution Landscape 2006 report 23 Figure 3: IFAs are still the most dominant players but banks catch up 27 Figure 4: Pensions have been the dominant product in the total life and pensions market since 2001 28 Figure 5: The value of single premium pension sales through the IFA channel has grown by 12% since 2004 29 Figure 6: Personal pensions account for 44% of total single premium pensions new business sold through the IFA channel in 2005 30 Figure 7: Group personal pensions accounted for 56% of total regular premium pensions new business income sold through the IFA channel in 2005 32 Figure 8: Single premium life business has continued to see strong growth since 2004 33 Figure 9: Unit-linked bonds now account for over 80% of total single premium life sales 34 Figure 10: Term assurance accounts for over 75% of regular premium life sales through IFAs 35 Figure 11: Unit trust/OEICs account for around 60% of total IFA life and pensions sales 36 Figure 12: IFAs have handled over 60% of unit trust and OEIC sales since 2001 38 Figure 13: Sales of life products show strong recovery while pensions business is stagnating 39 Figure 14: Bancassurance did not suffer as badly as other distribution channels between 2002 and 2003 40 Figure 15: Bancassurers saw more growth in single premium life than regular premium life business in recent years 41 Figure 16: Unit-linked bonds and distribution bonds sales increased in 2005, contrasted with the decline of guaranteed equity bonds 42 Figure 17: Contrary to market trends, bancassurers have significantly increased sales of mortgage related products in 2005 43 Figure 18: Bancassurers’ sales of regular premium pensions have broken the downward trend in 2005 44 Figure 19: Stakeholder pensions remain by far the most popular form of regular premium pension in bancassurance 45 Figure 20: In 2005, stakeholder pensions emerged as most popular form of single premium pension in bancassurance 45 Figure 21: Sales of single premium life products through the single-tie channel declined strongly in the last five years 46 Figure 22: The non-intermediated distribution channel sees largest sales in regular premium life sector 47 Figure 23: Single premium pensions represent the only product category where the single-tie channel has seen growth in 2005 48 Figure 24: Sales of regular premium pension products through the non-intermediated channel have shown an increase in 2005 49 Figure 25: Single outlet firms have increased significantly since 2005 59 Figure 26: Network members have significantly declined since 2003 60 Figure 27: Total IFA turnover increased by 9.6% between 2005 and 2006 62 Figure 28: Network members have seen a significant decrease in average turnover per firm since 2005 63 Figure 29: Sesame maintained its position as the largest UK IFA firm in 2006 64 Figure 30: Barclays has the largest branch network of all banks and building societies in the UK 65 Figure 31: HBOS is the dominant player in the UK bancassurance market 67 Figure 32: A number of non-traditional distributors have entered the UK financial services sector in the last 10 years 69 Figure 33: UK’s major insurers are increasingly seeking to diversify their distribution strategies to reach a broader customer audience 80 Figure 34: UK’s top 5 providers control almost 50% of the total UK life and pensions market 81 Figure 35: In terms of advertising, financial companies spend significantly more on life insurance than pension products 83 Figure 36: HBOS recorded highest sales of single premium life products in 2005 84 Figure 37: Legal & General recorded highest sales of regular premium life products in 2005 85 Figure 38: Aviva recorded highest sales of single premium pension products in 2005 86 Figure 39: Standard Life recorded highest sales of regular premium pension products in 2005 87 Figure 40: IFAs will remain the most dominant distribution channel in the UK in the next 5 years 108 Figure 41: Multi-tie advisors and multi-tie bancassurers will see the greatest increases in terms of sales in the next 5 years 109 Figure 42: The regular premium life market will see a slight decline in the next five years 110 Figure 43: SIPPs are expected to drive IFAs single premium pensions sales in the next five years 111 Figure 44: IFAs account for the vast majority of regular premium pensions sales 112 Figure 45: “Quasi-Delphi” forecasting technique 128