Economy & Finance

Uk guaranteed bonds 2011 growth opportunities in the bond market

1. UK Guaranteed Bonds 2011: Growth opportunities in the bond marketPublished:September 2011No.Of Pages:53Price:US $ 4495IntroductionEconomic turmoil has been detrimental…
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  • 1. UK Guaranteed Bonds 2011: Growth opportunities in the bond marketPublished:September 2011No.Of Pages:53Price:US $ 4495IntroductionEconomic turmoil has been detrimental to the investment bond market and new businessfor guaranteed bonds has reflected this overall decline. However, Datamonitor is forecastingthe guaranteed sector to be a bond category with significant growth potential over thecoming five years.Features and benefits* Detailed market sizing, competitor shares and forecasts are an invaluable guide for aninvestment bond provider.* In-depth insight into the investment bond market highlights future opportunities for allindustry stakeholders.* Detailed analysis of clear circumstances where investment bonds and UK guaranteedbonds in particular are an advantageous investment.HighlightsThe investment bond market survived another tumultuous year in 2011; the marketdeclined by a compound annual growth rate of 24% between 2006 and 2010 as uncertaintyabout the recovery of the financial markets continues.Providers will find it increasing hard to write guaranteed business under regulatorypressures for greater capital adequacy and financial strength of providers. However, theycan be proven resilient by providers making investors aware of particular circumstances inwhich bonds would be an advisable investment product.Table Of ContentsOVERVIEWCatalystSummaryEXECUTIVE SUMMARYThe UK investment bond market has declined at a compound annual growth rate of 24%over the past five yearsProviders should make investors aware of clear circumstances in which a bond is anadvantageous investmentThere is still life for investment bonds as there are clear circumstances in which it is anadvantageous investment
  • 2. MARKET CONTEXTInvestment bonds are life assurance products that sit competitively within the collectivesmarket spaceThere are a range of investment bond products in the marketThe investment bond market has plummeted in relation to mutual funds over the past fiveyearsInvestment bonds are decreasing in visibility in the total retail investment fund marketInvestment bonds have sharply declined in popularity since 2008The guaranteed sector has particularly fallen out of favor with investors since 2008Risk-averse consumers who prefer safer or guaranteed returns ensured the earlierpopularity of the bondHowever, providers have found it difficult to protect themselves against the risk ofguarantees becoming too onerousThe guaranteed bond category under the ABI encompasses guaranteed income, growth, andequity bondsThe non-intermediated channel has been successful in the distribution of guaranteed bondsIFAs dominate sales of investment bonds, reflecting the need for advice in the marketHowever, distribution of guaranteed bonds was focused through the non-intermediatedchannel in 2010COMPETITOR DYNAMICSThere are few providers of guaranteed bonds in the UK onshore marketAviva provides tailored options for the active or passive investorThe Friends Guaranteed Bond appeals more to cautious investors with no incomerequirementsMetLifes guaranteed investment bond offers three index portfolios which vary in theirexposure to the stock marketSantander offers two fixed-term investments with capital guaranteesMany guaranteed products use the principles of Constant Proportion Portfolio InsuranceThe investment bond market is seeing enhancements, with Retail Distribution Review-friendly pricing structuresCompetitive alternatives come from mutual funds with guaranteed elementsCHALLENGES AND OPPORTUNITIESThe future success of guaranteed bonds is not "guaranteed" but opportunities exist for themarketInvestors will continue to question the role of unit-linked bonds in the future, as they lackelements of protection against market volatilityMoney market bonds will continue to be seen as the refuge of choice during the ongoingeconomic uncertaintyGuaranteed bonds will see a sharp increase in new business premiums in 2011 due to a newentrantA with-profits revival will not come to fruition and instead there will be renewed interest indistribution bondsThe appropriateness of a guaranteed bond for any individual investor is complex todetermine but it remains a viable investment productPrevailing economic conditions will continue to pose a key challenge to the marketGuaranteed bond providers should put efforts into making consumers aware of the
  • 3. importance between risk and returnThe sale of investment bonds will continue to be firmly focused through the IFA channelOpportunity: there are clear circumstances in which an investment bond is an advantageousinvestmentInvestors in mutual funds pay tax on gains and on income, which gives bonds an advantageA higher rate tax payer can receive income from a bond and defer taxBonds can be assigned to avoid an income tax chargeA bond is an efficient investment for inheritance tax planningOpportunity: guaranteed bonds are a suitable alternative to retirement planningThe ability to withdraw money in the lifetime of the investment makes guaranteed bondsattractive to the changing retirement planning landscapeA guaranteed bond can help a retired person to avoid the age allowance trapInvestment bonds are not included as means for individuals needing long-term careOpportunity: the Retail Distribution Review will make guaranteed bonds more attractivethrough lower product chargesIndustry concerns around the Retail Distribution Review include poor returns and high exitfeesThe Retail Distribution Review is examining both the advice and distribution of retailinvestment productsThe RDR creates three tiers of advice for consumersOpportunity: wrap platforms continue to be a central theme for providersThere are eight key areas where a wrap platform will help to overcome challenges forguaranteed bond providersHowever, the wrap market under the RDR remains controversialChallenge: guaranteed bonds may no longer be appropriate for an active investor with alarge investment portfolioThe tax advantages of guaranteed bonds may not apply to investors with large portfoliosGuaranteed bonds also need to attract the less affluent consumerAPPENDIXSupplementary dataProduct definitionsLife-based savings productsLife assuranceSingle premium lifeWith-profits bondUnit-linked bondGuaranteed income and growth bondsGuaranteed equity bondsDistribution bondsPurchased life annuitiesOther bondsAnnual premium lifeEndowment policyWhole of life insuranceTerm assuranceIncome protectionCritical illnessCollective lifeISAs
  • 4. Personal pensionsStakeholder pensionsGroup personal pensionsDepartment for Work and Pensions rebateEmployer-sponsored stakeholder (ESS) pensionSelf-invested personal pensions (SIPPs)Free-standing additional voluntary contributions (FSAVCs)ABI definitions of distribution channelsIndependent financial advisorsDirect sales forcesTied agentsMulti-tied agentsBancassuranceDirect marketingTelesalesOtherFurther readingDatamonitor researchSecondary sourcesAsk the analystDisclaimerLIST OF TABLESTable: Total retail investment fund market: investment bonds and mutual funds (£m gross),2006–10Table: New business premiums from investment bonds (£m APE), 2006–10Table: Investment bonds share of market, 2006–10Table: Forecast new business premiums for investment bonds (£m APE), 2011f–15fTable: Forecasts of UK macroeconomic variables, 2011f–15fTable: Forecast investment bonds new business segmented by distribution channel (£mAPE), 2011f–15fTable: New business premiums of investment bonds split by distribution channel (£m APE)2006–10Table: New business premiums of guaranteed bonds split by distribution channel (£m APE)2006–10LIST OF FIGURESFigure: Mutual funds have remained a viable investment vehicle compared to investmentbondsFigure: The investment bond market has declined sharply over the last five yearsFigure: Guaranteed bonds observed a steep decline in new business in 2010Figure: Guaranteed bonds have lost market share since 2007Figure: IFAs dominate the sales of investment bondsFigure: The non-intermediated channel dominated the distribution of guaranteed bonds in2010Figure: The Aviva Guaranteed Selection offers capital guarantee and growth potentialFigure: Aviva and The Co-operative Investments make investment bonds accessibleFigure: The Co-operative Investments provides a wealth of information about theinvestment options available
  • 5. Figure: MetLifes index portfolios offer investors varying exposure to equityFigure: The investment bond market will grow by 2% over the next five yearsFigure: Going forward, investment bonds will still predominantly be distributed by IFAsFigure: There are key instances in which investment bonds maintain an advantageFigure: Funds accepted into the guaranteed bond category of the Association of BritishInsurersAbout Us:ReportsnReports is an online library of over 100,000+ market research reports and in-depthmarket research studies & analysis of over 5000 micro markets. We provide 24/7 online andoffline support to our customers. Get in touch with us for your needs of market researchreports.Follow us on Twitter: Facebook Page: Rambler road,Suite727,Dallas,TX75231Tel: + 1 888 391 5441E-mail: sales@reportsandreports.comhttp://www.reportsnreports.comVisit our Market Research Blog
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