1. UK Guaranteed Bonds 2011: Growth opportunities in the bond market
Published:September 2011
No.Of Pages:53
Price:US $ 4495
Introduction
Economic turmoil has been detrimental to the investment bond market and new business
for guaranteed bonds has reflected this overall decline. However, Datamonitor is forecasting
the guaranteed sector to be a bond category with significant growth potential over the
coming five years.
Features and benefits
* Detailed market sizing, competitor shares and forecasts are an invaluable guide for an
investment bond provider.
* In-depth insight into the investment bond market highlights future opportunities for all
industry stakeholders.
* Detailed analysis of clear circumstances where investment bonds and UK guaranteed
bonds in particular are an advantageous investment.
Highlights
The investment bond market survived another tumultuous year in 2011; the market
declined by a compound annual growth rate of 24% between 2006 and 2010 as uncertainty
about the recovery of the financial markets continues.
Providers will find it increasing hard to write guaranteed business under regulatory
pressures for greater capital adequacy and financial strength of providers. However, they
can be proven resilient by providers making investors aware of particular circumstances in
which bonds would be an advisable investment product.
Table Of Contents
OVERVIEW
Catalyst
Summary
EXECUTIVE SUMMARY
The UK investment bond market has declined at a compound annual growth rate of 24%
over the past five years
Providers should make investors aware of clear circumstances in which a bond is an
advantageous investment
There is still life for investment bonds as there are clear circumstances in which it is an
advantageous investment

2. MARKET CONTEXT
Investment bonds are life assurance products that sit competitively within the collectives
market space
There are a range of investment bond products in the market
The investment bond market has plummeted in relation to mutual funds over the past five
years
Investment bonds are decreasing in visibility in the total retail investment fund market
Investment bonds have sharply declined in popularity since 2008
The guaranteed sector has particularly fallen out of favor with investors since 2008
Risk-averse consumers who prefer safer or guaranteed returns ensured the earlier
popularity of the bond
However, providers have found it difficult to protect themselves against the risk of
guarantees becoming too onerous
The guaranteed bond category under the ABI encompasses guaranteed income, growth, and
equity bonds
The non-intermediated channel has been successful in the distribution of guaranteed bonds
IFAs dominate sales of investment bonds, reflecting the need for advice in the market
However, distribution of guaranteed bonds was focused through the non-intermediated
channel in 2010
COMPETITOR DYNAMICS
There are few providers of guaranteed bonds in the UK onshore market
Aviva provides tailored options for the active or passive investor
The Friends Guaranteed Bond appeals more to cautious investors with no income
requirements
MetLife's guaranteed investment bond offers three index portfolios which vary in their
exposure to the stock market
Santander offers two fixed-term investments with capital guarantees
Many guaranteed products use the principles of Constant Proportion Portfolio Insurance
The investment bond market is seeing enhancements, with Retail Distribution Review-
friendly pricing structures
Competitive alternatives come from mutual funds with guaranteed elements
CHALLENGES AND OPPORTUNITIES
The future success of guaranteed bonds is not "guaranteed" but opportunities exist for the
market
Investors will continue to question the role of unit-linked bonds in the future, as they lack
elements of protection against market volatility
Money market bonds will continue to be seen as the refuge of choice during the ongoing
economic uncertainty
Guaranteed bonds will see a sharp increase in new business premiums in 2011 due to a new
entrant
A with-profits revival will not come to fruition and instead there will be renewed interest in
distribution bonds
The appropriateness of a guaranteed bond for any individual investor is complex to
determine but it remains a viable investment product
Prevailing economic conditions will continue to pose a key challenge to the market
Guaranteed bond providers should put efforts into making consumers aware of the

3. importance between risk and return
The sale of investment bonds will continue to be firmly focused through the IFA channel
Opportunity: there are clear circumstances in which an investment bond is an advantageous
investment
Investors in mutual funds pay tax on gains and on income, which gives bonds an advantage
A higher rate tax payer can receive income from a bond and defer tax
Bonds can be assigned to avoid an income tax charge
A bond is an efficient investment for inheritance tax planning
Opportunity: guaranteed bonds are a suitable alternative to retirement planning
The ability to withdraw money in the lifetime of the investment makes guaranteed bonds
attractive to the changing retirement planning landscape
A guaranteed bond can help a retired person to avoid the age allowance trap
Investment bonds are not included as means for individuals needing long-term care
Opportunity: the Retail Distribution Review will make guaranteed bonds more attractive
through lower product charges
Industry concerns around the Retail Distribution Review include poor returns and high exit
fees
The Retail Distribution Review is examining both the advice and distribution of retail
investment products
The RDR creates three tiers of advice for consumers
Opportunity: wrap platforms continue to be a central theme for providers
There are eight key areas where a wrap platform will help to overcome challenges for
guaranteed bond providers
However, the wrap market under the RDR remains controversial
Challenge: guaranteed bonds may no longer be appropriate for an active investor with a
large investment portfolio
The tax advantages of guaranteed bonds may not apply to investors with large portfolios
Guaranteed bonds also need to attract the less affluent consumer
APPENDIX
Supplementary data
Product definitions
Life-based savings products
Life assurance
Single premium life
With-profits bond
Unit-linked bond
Guaranteed income and growth bonds
Guaranteed equity bonds
Distribution bonds
Purchased life annuities
Other bonds
Annual premium life
Endowment policy
Whole of life insurance
Term assurance
Income protection
Critical illness
Collective life
ISAs

4. Personal pensions
Stakeholder pensions
Group personal pensions
Department for Work and Pensions rebate
Employer-sponsored stakeholder (ESS) pension
Self-invested personal pensions (SIPPs)
Free-standing additional voluntary contributions (FSAVCs)
ABI definitions of distribution channels
Independent financial advisors
Direct sales forces
Tied agents
Multi-tied agents
Bancassurance
Direct marketing
Telesales
Other
Further reading
Datamonitor research
Secondary sources
Ask the analyst
Disclaimer
LIST OF TABLES
Table: Total retail investment fund market: investment bonds and mutual funds (£m gross),
2006–10
Table: New business premiums from investment bonds (£m APE), 2006–10
Table: Investment bonds' share of market, 2006–10
Table: Forecast new business premiums for investment bonds (£m APE), 2011f–15f
Table: Forecasts of UK macroeconomic variables, 2011f–15f
Table: Forecast investment bonds new business segmented by distribution channel (£m
APE), 2011f–15f
Table: New business premiums of investment bonds split by distribution channel (£m APE)
2006–10
Table: New business premiums of guaranteed bonds split by distribution channel (£m APE)
2006–10
LIST OF FIGURES
Figure: Mutual funds have remained a viable investment vehicle compared to investment
bonds
Figure: The investment bond market has declined sharply over the last five years
Figure: Guaranteed bonds observed a steep decline in new business in 2010
Figure: Guaranteed bonds have lost market share since 2007
Figure: IFAs dominate the sales of investment bonds
Figure: The non-intermediated channel dominated the distribution of guaranteed bonds in
2010
Figure: The Aviva Guaranteed Selection offers capital guarantee and growth potential
Figure: Aviva and The Co-operative Investments make investment bonds accessible
Figure: The Co-operative Investments provides a wealth of information about the
investment options available

5. Figure: MetLife's index portfolios offer investors varying exposure to equity
Figure: The investment bond market will grow by 2% over the next five years
Figure: Going forward, investment bonds will still predominantly be distributed by IFAs
Figure: There are key instances in which investment bonds maintain an advantage
Figure: Funds accepted into the guaranteed bond category of the Association of British
Insurers
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