Lombard Sees More Wealth Products Sold Via Private Banks

Tom Burroughes

18 April 2013

Lombard International Assurance predicts it will continue to distribute a higher percentage of its wealth management products through private banks as insurance-linked services of this type win appeal, its chief executive says.

While not always as widely understood as other types of wealth management player, life insurance firms, and the structures they can put in place for high net worth clients, are an important part of the industry (to view an another article on this issue, click here).

And Luxembourg-based Lombard, which is a part of the UK-listed Resolution group of financial companies, is in no doubt that as other types of wealth structure come under pressures such as from tax, the insurance route offers plenty of potential, given its robust legal status. This is still a relatively specialised area in some traditional wealth management markets.

Other firms operating in this space besides Lombard include Swiss Life, Southpac Life, and Five Oceans Life. The types of products that can be sold and marketed to clients vary, as do the tax treatment of such products. (The term “wrapper” is sometimes used, although its meaning varies between, say, the US and Switzerland.)

One trend is clear: private banks are an increasingly important distribution channel, Matt Moran, CEO at Lombard, told this publication in a recent interview. "We have gone from about one third 18 to 24 months ago to about 60 per cent of our product being distributed through private banks.”

Will this continue? "That is certainly where we will continue to emphasise our efforts in the future," he said.

Moran spoke as his firm recently announced headline sales had risen by 7 per cent in 2012 from a year before; actuarial operating profit was up 27 per cent. Underlying IFRS profit was up by about 3 per cent when restructuring costs were taken out. The firm said its mix of new business sales is increasingly coming from private banks (57 per cent in 2012 compared with 39 per cent in 2011) rather than independent financial advisors. The firm works through a distribution network of private banks and independent financial advisors to HNW individuals across Europe and selected markets in Latin America and Asia. The solutions on offer are typically based on single premium, whole of life, unit-linked life assurance structures with limited levels of reinsured life cover.

Restructuring

The restructuring costs relate to how Lombard is pushing to boost its presence in the wealth management space, Moran said.

"The restructuring and other moves are designed to position Lombard to be the life insurer structurer of choice for the wealth management and private banking industries in particular,” he said. "We will continue to see that push in the next two to three years.”

This is a profoundly global business. Moran explained that clients want wealth structures that are portable for families and for people managing assets in multiple jurisdictions. The firm provides solutions in 13 different markets/geographic sectors.

"Core Europe is still a key market for us. More and more historical wealth management structures are becoming less relevant; life insurance has a significant part to play over the coming decades."

In the Nordic region, the firm is writing solid business from Finland and Sweden; it sees opportunities to develop business in Nordic countries, he said.

In the next three to five years, Lombard sees opportunities to grow in Asia and Latin America. In Asia, the region is appealing due to well-chronicled rises in the amount of wealth, and the fact that a generation is, for the first time, having to deal with complex succession planning and wealth transfer issues.

"We have done business in Latin America for a number of years and we continue to see this slowly expand," Moran said.

Private placement

Asked about issues such as private placement life insurance, Moran said: "Lombard’s solution is developed client by client and compliant by jurisdiction. We are not selling an international wrapper.”

"We have seen the use of trusts become less relevant," he said, giving the example of French trust law, which since 2011 has created a "see-through" structure, at the expense of historic client benefits.

The EU Life Directives, which have been adopted into law in each European country, provide clear and robust frameworks to support client needs, he said.

Depending on specific jurisdictions, some life insurance policies have tax deferral benefits, which aid planning. There are also benefits in control of assets, transfer and management of potential conflicts, as in a family-owned business and set of assets, he said.

In Asia, tax mitigation is less of a reason why life insurance policies are held, as there are limited tax benefits to holding them; instead, the main drivers are confidentiality, liquidity, asset control and transfer, he added.