| Paragon – By Scottish Life International (Originally published in "International Adviser" August 2008. Reproduced with the kind permission of International Adviser) Scottish Life International, who have generally focused to date on single premium business, have just launched Paragon, a new regular premium product, for Middle East and Far East business. This article, part of a series of monthly analyses using LifeBase’s product analytical tools, takes a detailed look at the product to see how it compares with its competitors. Company Scottish Life International (SLI) came into the offshore life market in 1996, establishing in the Isle of Man with a marketing strategy focused on capital-protected bonds and funds. Over the years, SLI has been led by a number of interesting industry characters, and its business strategy has gradually evolved. A key product now is the PIMS portfolio bond. SLI (based in Douglas) operates not just in the UK but also around the world, including the Middle East where it has offices in Lebanon and Dubai, the Far East (a Hong Kong office), and Germany where it operates under the Royal London brand. New business in 2007 was £165m and funds under management exceed £800m. Parent Royal London is now the largest mutual life and pensions group in the UK, with funds under management of £32.6 billion and annual profits of £147m (2007). When Royal London finally won in the bidding war to buy Resolution, the acquisition brought offshore competitor Scottish Provident International (SPILA) into the group. A key corporate priority for the next 18 months will be integration of SLI and SPILA into a single IoM operating unit (though no announcement has yet been made as to whether the longer-lived SPILA brand and business will be maintained). Funds SLI’s fund range for Paragon is comprehensive and very international in flavour, as suits the regions in which it is being launched. Paragon links directly to a range of around 100 external funds. The range of fund managers includes:
Past performance figures reveal that the high performing funds in the range are: TABLE 1 – TOP PERFORMING FUNDS (in fund currency, 1-year to 30/6/08)
source: SLI By comparison, the top 10 performing offshore life funds over the same period were as shown in Table 2. TABLE 2 – 5-YEAR PERFORMANCE: ALL FUNDS
source: LifeBase As ever, some companies take their charges through the funds, whilst others (such as SLI) take charges as unit deductions. For this reason, LifeBase enables performance analysis to be done on a “modified performance” basis, to provide proper like-for-like comparisons. The fund range for Paragon has been carefully selected, to include a good choice of specialist funds, along with more traditional investment choices. Examples of the former include numerous single country equity funds, eg :
Examples of specialist funds in the Paragon range include:
Paragon therefore provides a number of very interesting fund choices. Charges and Design Paragon eschews the normal “standard and Initial unit” design found in other popular offshore regular premium plans. Instead, it uses a 4-year establishment charge, with between 30% (for a 5-year premium payment term) and 54% (25-year term) of all units purchased in the first 4 years being cancelled over the period. Establishment charges are guaranteed to SLI via a corresponding penalty on early surrender. Unit allocation is 100%-105%, depending on premium size, though there is a 7% initial charge on all regular premiums. An annual charge of 1.5% pa applies, taken by unit cancellation, together with a quarterly policy fee (currently £10.50 pq). The design of Paragon also incorporates loyalty bonuses, however, which for the more persistent investor can substantially rebate the quite high establishment charges over time. There is a 1% annual loyalty bonus, beginning between the 2nd policy anniversary (for 5-7 year plans) and 7th anniversary (for 24-25 year plans), plus special 7% loyalty bonuses on each of the 5th, 10th, and 15th anniversaries. These loyalty bonuses therefore are quite flattering for Paragon’s projected maturity values, for policies which pay throughout the full term. The design of Paragon is summarised in Table 3 below. TABLE 3 - POLICY CHARGES
source: LifeBase Using LifeBase’s projections suite, it is possible to see how these charges compare against other products when it comes to projected maturity values. Table 4 shows the results for one example – a 210-year savings plan with a premium of $500 pm, where projected values are at maturity assuming 7% pa investment return before charges, with external fund charges of 1.5% pa assumed where applicable. Table 5 shows similar figures for a 20-year plan. As can be seen, Paragon is more competitive on projected maturity values for longer term plans (where the effect of the loyalty bonuses is significant – albeit of course only for policies that pay premiums throughout). TABLE 4 – PROJECTIONS: EXCLUDING EXTERNAL FUND CHARGES $500 pm x 10 years
* special offer terms Source: LifeBase Care should be taken when interpreting tables 4 and 5 above. The numbers shown are projected values at maturity. The fact is however that few policies will reach this stage and pay premiums throughout. Therefore it is arguably more important to look at the position for surrender values or values where policies are made paid-up part way through. Work undertaken by Boal & Co in this area does tend to show that products with higher maturity values are associated with lower surrender values, and vice versa. It is important for advisers not to lose sight of this fact. TABLE 5 – PROJECTIONS: EXCLUDING EXTERNAL FUND CHARGES $500 pm x 20 years
* special offer terms Source: LifeBase Features The list of additional features for Paragon is quite short:
Summary Paragon is launched into an important market segment, i.e. regular savings plans, an area of new business which SLI (and a few other life offices) has been absent from for far too long. The regular premium market is tough for any newcomer, being dominated by giants such as Friends Provident, General, Royal Skandia and Zurich. Paragon is broadly competitive on price, more so for those longer term plans which eventually qualify for the large loyalty bonuses (and less so for those that do not). The fund range is interesting and quite distinctive; it will be interesting to see how SLI adapt and manage it to suit different market conditions in the future.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||