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Contrary to the predictions of some that the pandemic will see a pull-back from globalisation, Jurgen Vanhoenacker, who heads the Sales and Wealth Structuring teams at Lombard International Assurance in Luxembourg, sees no signs of a reduced appetite for clients to live cross-border lives.
‘I don’t think our clients will reduce their global footprints: they will still want homes in different countries, their businesses will still operate around the globe, with family members living footloose lives,’ Vanhoenacker said. He also sees no change for the firm’s business prospects so far this year. He said new business premium has even been higher than targeted for Lombard International Assurance, Luxembourg’s leader for cross-border insurance-based wealth planning solutions.
‘When Covid first struck we initially assumed this would be an extremely difficult year, but in Q1 and Q2 we have seen overall very strong performance,’ he said. It is as yet hard to gauge whether this is a broad trend across the pan-European unit-linked life insurance industry operating out of the Grand Duchy. The whole unit-linked insurance sector saw a 0.7% fall in premium income between the first quarters of 2019 and 2020, as reported by the industry regulator the CAA.
Vanhoenacker remains cautious though: ‘This doesn’t guarantee that 2020 will be a strong year, as there has been slightly reduced momentum in generating a new business pipeline, even though there is nothing negative to report at this stage.’ Much depends on how the economy reacts as restrictions are lifted, and to what extent the summer holiday period will see a drop-off in business.
So while Lombard International Assurance’s assets under administration may have levelled off somewhat by disruption of investment markets, this effect was more than counteracted by increased appetite for their services. The market will have to await audited results to confirm these impressions, however.
The firm provides customised life insurance policies that embed a client’s assets, products which facilitate wealth and succession planning for international clients. So as well as exposing clients to different investment possibilities, these policies allow this to be carried out in a tax-efficient manner, particularly related to how wealth is passed on after death.
Covid accelerates decision-making
Although the picture is not yet perfectly clear, Vanhoenacker sees a trend of the health crisis focusing minds. ‘Some clients and partners have been explicit saying: ‘I have been thinking about this for a while, and Covid has really accelerated the need to take a decision,’ he said. This is particularly the case for clients close to retirement age seeking to ensure that their businesses, investments, and assets would be managed and passed on to their satisfaction if the worst were to happen. In other words, using a life product for financial planning purposes was something that people had been considering, and the health crisis made this an urgent matter.
Lombard International Assurance’s European operation serves more than fifteen markets, and some have experienced a particular spurt of growth. For example, Spanish business is up quite strongly as some clients have been unnerved by the expectations of higher taxes on wealthy individuals from the left-leaning nature of the coalition government there. Consequently, they are looking for Lombard International Assurance to provide solutions to shift their tax responsibilities away from Spain. Meanwhile in France, the roll-out of a paperless and digitally enabled subscription solution using e-signatures has been particularly advantageous during the lockdown, and has helped facilitate a surge in demand. It remains to be seen if this new innovation will have lasting effects.
The crisis also appears to have had an impact on the investment stances of different client segments, Vanhoenacker noted. The firm saw many clients in the upper-affluent, lower high net worth segment (with assets around €1m-€2m) taking a more defensive investment stance, tending to adjust their strategies within Lombard International Assurance’s policies towards lower risk bond and money market investments. However several of ultra-high net worth clients (generally with upwards of about €25m in assets) adopted more offensive strategies.
‘A stock market crisis is negative for some but others see opportunities, and we have seen several of our clients shifting significantly to non-traditional investments such as private equity, hedge funds, debt funds and so on,’ noted Vanhoenacker. In recent years such alternative funds have tended to account for around 12%-13% of assets under administration for the firm, but this year has seen increased appetite for these strategies.
It is Vanhoenacker’s sense that few clients are expecting a quick rebound for the economy, with a full recovery likely to take years. There is also awareness that increased taxation is probable as governments seek to pay back the debt amassed over the last three months, and new regulation may also be in demand. This is also focusing client minds on wealth planning.