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Published by: Mintel International Group Ltd.
Published: Jun. 1, 2006 - 91 Pages
Table of Contents
- INTRODUCTION AND ABBREVIATIONS
- Report content
- Key sources
- Global information and research
- Consumer research
- ACORN
- ABBREVIATIONS
- EXECUTIVE SUMMARY
- A market hit by falling consumer confidence in the with-profits concept
- Regular-premium life policies are key to the with-profits market
- Figure 1: Number of linked, non-linked and non-profit individual policies in each of the key investment/saving products, 2004
- With-profits new business has dropped significantly over past five years
- Figure 2: Value of long-term new business (life and pensions) by linked, non-linked and non-profit basis, 2000-05
- Consumer saving sentiment is increasing
- Life insurance is the most popular WP product
- The need for advice on WP concepts is clear
- Lack of faith in endowment policies to do their job
- Half of the sample are averse to stockmarket investment, while 22% are interested in the notion
- Too little, too late - with-profits are set to become a niche product
- BACKGROUND AND DEFINITIONS
- Linked (unit-linked) funds
- Linked (unit-linked) life policy
- Non-linked (with-profits) funds
- Non-linked (with-profits) policies
- Unitised with-profits funds
- With-profits life insurance
- Types of products typically offered on a with-profits basis
- Savings and investment-focused products
- Individual pension products
- Mortgage-related definitions
- OTHER DEFINITIONS
- Equitable Life timeline - with-profits pensions and annuities scandal
- Figure 3: Timeline of events at Equitable Life, 2000-06
- MARKET DRIVERS
- With-profits is no longer a central pillar for new business
- Sales of with-profits policies crash
- Competition among with-profits providers led to some rash promises
- Rash promises came undone in the market downturn
- Figure 4: FTSE 100 and FTSE All Share Index, Jan 1996-Jan 2006
- Overexposed during the downturn, underexposed during the upturn
- Below-average performance was compounded by suppressed bonuses - policyholders felt cheated
- MVRs added insult to injury
- Performance of with-profits funds compared with unit-linked funds
- Returns comparison
- Figure 5: Comparative ten-year average performance of a selection of fund types, based on performance, 1996-2006
- Bonus allocations mean that IFAs will not recommend with-profits funds in the current climate
- With-profits funds have been less volatile
- Figure 6: Average annual returns for with-profits policies compared with unit trust investments, 1995-2005
- With-profits concepts have been associated with controversial products
- Endowment sales have plummeted over recent years as investments fail to cover the cost of the mortgage
- Mortgage endowment policies - switching and decoupling to avoid the shortfall
- With-profits endowment policies suffer the 'double whammy'
- Traded endowment policies - an exit opportunity for with-profits customers
- Other with-profits products have struggled too
- Pensions, bonds and annuities
- Will industry initiatives bolster public confidence?
- Transparency is key to consumer confidence and 'smoothing' principles do not facilitate it
- Cautious managed funds may appeal to equity investors looking for less risk
- Figure 7: Annual returns of bonds, equities and cautious managed funds, 2002-04
- GOING FORWARD
- Low interest rates and increased consumer saving will underpin investment demand
- Figure 8: PDI, consumer expenditure, savings and saving ratio, 2000-11
- Figure 9: Bank of England base rate, 1992-2006
- The future for with-profits
- MARKET SIZE AND NEW BUSINESS TRENDS
- IN-FORCE LONG-TERM BUSINESS
- With-profits policies represent roughly half of the life and pensions market by number of policies in existence
- Figure 10: Number of UK life and pensions policies in force in the UK, by linked, non-linked and non-profit individual policies, 2004
- Regular-premium life policies are key to with-profits market (by volume)
- Figure 11: Number of linked, non-linked and non-profit individual policies in each of the key investment/saving products, 2004
- Regular-premium life policies are key to with-profits market
- Figure 12: Value of UK life and pensions policies in force in the UK, by linked, non-linked and non-profit individual policies (selected products), 2004
- By value, with-profits products represent three quarters of regular-premium policies in force
- Figure 13: Value of regular-premium policies in force in the uk, by linked, non-linked and non-profit individual policies and by product, 2004
- In-force business - with-profits trends in each product
- Life policies
- Figure 14: Value of regular-premium life policies in force, by linked and non-linked policies 1985-2004
- Endowments (mortgage-related)
- Figure 15: Value of regular-premium endowments (mortgage-related) in force, on a linked and non-linked basis, 2001-04
- Savings endowments
- Figure 16: Value of regular-premium endowments (savings-related) in force, on a linked and non-linked basis, 2001-04
- Individual pensions - the total value of with-profits pension policies in force is down while linked policy values are up
- Figure 17: Individual pensions, value of regular-premium policies in force, on a linked and non-linked basis, 1985-2004
- Analysing policies in force by regular premiums shows the extent of with-profits decline
- Figure 18: Individual pensions, number of regular-premium contracts in force, on a linked and non-linked basis, 1985-2004
- NEW LONG-TERM BUSINESS
- With-profits new business has dropped significantly over past five years
- Figure 19: Value of long-term new business (life and pensions), by linked, non-linked and non-profit basis, 2000-05
- 2003 was the year of the with-profits watershed…
- Figure 20: Value of new business in life and pensions, growth assessed by type of policy (non-linked, linked and non-profit), 2000-05
- ...and in 2005 with-profits represented only 9% of new business
- Figure 21: Value of new long-term business, 2005
- The value and volume of with-profits business may be declining, but so are the products in which they exist
- Figure 22: Illustration of value and volume of selected new life assurance business, 1994-2005
- Figure 23: Value and volume of selected new life assurance business, 1994-2005
- Other forms of single-premium saving and investments have also witnessed declining popularity of the with-profits concept
- With-profits bonds
- Figure 24: Value and volume of new unit-linked and with-profits bonds, 1996-2005
- Life annuities
- Figure 25: Value (single-premum APE) and volume of new purchased life annuities and pension annuities, 1996-2005
- Individual pensions
- Figure 26: Value of new business in individual pensions, 1994-2005
- Summary
- KEY PLAYERS AND DISTRIBUTION
- Figure 27: Key players in life business and their associated with-profits funds, 2004
- Distribution and advice
- Figure 28: Distribution of new regular- and single-premium business, by distibution channel, 2000-05
- ADVERTISING AND PROMOTION
- Figure 29: Annual advertising spend of financial services companies in key with-profits areas, April 2005-
- March 2006
- With-profits bonds advertising
- Figure 30: Highest adspend on with-profits bonds, by company, April 2005-March 2006
- Endowments advertising
- Figure 31: Highest adspend on endowments, by company, April 2005-March 2006
- THE CONSUMER AND PRODUCT OWNERSHIP
- Life insurance is the most popular WP product
- Figure 32: Financial product ownership, April 2006
- 45-54-year-old ABs are key owners of WP products
- Figure 33: Financial product ownership, by gender, age and socio-economic group, April 2006
- Implications
- Married people in the third age are key consumers
- Figure 34: Financial product ownership, by marital status, lifestage, age/socio-eoncomic group and tenure, April 2006
- Retirees are most likely to own with-profits bonds
- Figure 35: Financial product ownership, by working status, gross annual household income, TV region and ACORN category, April 2006
- Broadsheet and mid-market tabloid readers are key to with-profits
- Figure 36: Financial product ownership, by new technology users, media usage, commercial TV viewing and supermarket usage, April 2006
- Implications
- Consumers' attitudes towards with-profits-based investments
- The need for advice on WP concepts is clear
- Figure 37: Attitudes towards with-profits funds, April 2006
- Implications
- Even with-profits policyholders see the need for greater advice
- Figure 38: Attitudes towards with-profits funds, by product ownership, April 2006
- With-profits bondholders and endowment policyholders are most hostile to with-profits concepts
- Further analysis
- THE FUTURE
- Too little, too late?
- Consumer appetite for stockmarket investment
- The future niche with-profits market
- Distribution may be key
- FORECAST
- Forecasting in-force life business
- Figure 39: Forecast of the value of regular-premium life policies in force, by linked and non-linked policies, 2005-11
- Forecasting new business
- Figure 40: Forecast of the value of long-term new business (life and pensions), by non-linked and linked new business, 2005-11
- FACTORS USED IN THE FORECAST
- In-force business:
- New business:
- APPENDIX: RESEARCH METHODOLOGY
AbstractFor the last 50 years, with-profits policies have taken a large share of the long-term savings and investment market in the UK; and in 2005, the FSA estimated that with-profits life and pension funds were worth just under £400 billion. Although such funds are substantial and represent approximately half of all investment funds in the life and pensions sector, with-profits policies have dramatically fallen out of favour with consumers in recent years. With-profits policies represented just 9% of all new long term life and pensions business in 2005, while unit-linked new business represented some 84% of life and pensions business in the same year. This report shows how and why with-profits funds have fallen from grace and attempts to understand the consumer’s viewpoint on this complex area of investment.
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