As part of a continuing series of articles about insurance-linked wealth management services and products, this publication spoke with Lombard International Assurance.

Editor’s note: This is
the third of an occasional series of articles examining the insurance-linked
wealth management industry. To view the previous article, click here. This publication interviewed Lombard International
Assurance, the Luxembourg-based firm. Comments are from David Steinegger, its
chief executive.

What sort of services and distribution channels do
you use?

“Lombard
offers compliant unit-linked solutions to wealthy and high-net worth
individuals, which is a long way from the traditional concept of life assurance
policies. We coined the concept `privatbancassurance’ that expresses what we
do: Financial engineering that combines sophisticated private banking services
with the fiscal advantages of life assurance to achieve financial security for
wealthy investors.”

“Lombard
provides tailor-made solutions to meet the long-term tax and estate planning
needs of HNW individuals and their families. We don’t offer investment advice
and we don’t deal directly with clients, instead, we partner with a small number
of specialised advisers to HNW individuals, such as private banks, independent
financial advisers and increasingly, other independent practitioners such as
lawyers and family offices.”

“The size of policies
varies dramatically, from our minimum target for HNW individuals of €1 million
(around $1.39 million) to UHNW individuals with a wealth of more than €10 million and this latter
category now accounts for 40 per cent of our annual turnover.”

What would you say are your strongest markets at present?

“Lombard
has built its business over 20 years through the cross-border opportunities
created by the EU’s Third Life Directive. We have marketing consultants based
in the UK, Germany, France, Italy, Spain, Finland, Sweden and Belgium, as well
as a presence in Asia and Latin America. In Switzerland we also market our
services to non-residents through our partners and from our base in Luxembourg
we’re just starting to market our solutions to residents. Our largest markets
are in Italy, the UK, Belgium,
Germany and Spain and we see strong growth prospects in Asia.”  

“Lombard doesn’t market its
services to US citizens or residents, but we do offer services outside Europe
to clients in Asia and Latin America - the main attraction of Lombard’s
solutions there is the way life assurance policies can help offer financial
security, which in our case is greatly aided by Luxembourg’s very strong
policyholder protection regime. In a volatile climate, this is highly valued by
our clients as they can count on the rigorous regulatory regime in Luxembourg to
protect their assets - something they feel they don’t enjoy in their home
country.”

How do you view the insurance-linked wealth
management market as a whole, in terms of growth potential?

“The market has
tremendous potential. For example, the recent Cap Gemini Merrill Lynch report
into global wealth, estimates that the global HNW individual population grew 8 per cent to almost
11 million people, with their total wealth growing to $42.7 trillion last year.
Lombard strongly believes that by
offering compliance, security and succession planning benefits against the
backdrop of such large-scale generational wealth transfer, there is a
substantial opportunity. This will fuel strong growth into the future and we maintain
ambitious plans.”

“We see the market as a
whole growing quickly too, with new competitors helping to expand the market.
At the same time, the benefits vary greatly from market to market and so
understanding the cultural and fiscal realities of each market is essential for
success.”

Where do you see the most promising
growth and why?
“From our European base, we’re developing stronger distribution partner
relationships in general. Promising growth should also come from generational
planning, as the large quantity of wealth - highlighted in the global wealth
report - is passed on to the next generation in future decades. From the
current crisis, there are many signals that the variety of taxes imposed on
wealth will increase, which, when coupled with a general erosion of banking
secrecy, should attract more people to our niche, compliant solutions. Outside Europe, we see tremendous potential in the Asian market
and we’re actively expanding our presence there.”

 Where
do you see the slowest rate of growth and why?
“There are opportunities in most markets, though there is a short-term impact
from the financial crisis and a subsequent slowdown and this has impacted on
our business results in the first half of 2011. In the longer term, there is significant
growth potential across all our markets.”

Who do see as your main competitors?

“We have
seen a significant increase in competition, which is not bad news at all, as it
prevents us from becoming complacent! It also helps create a much larger market
opportunity and encourages the wider recognition of life assurance as one of
the most effective succession planning tools. Trusts were sometimes in
competition with us too, but now compliant trust structures can be used in
conjunction with life assurance for some of our markets.”

“Amongst our direct competitors
who operate from Luxembourg,
most do not target the same segment of the wealth pyramid. Instead, they focus
on more standard products and typically their concentration tends to be at the
more affluent end rather than tailor-made solutions, which are our speciality.”

What sort of risks/challenges face your
firm/industry?

“The challenge for both Lombard and our industry is to provide attractive
solutions and to ensure we are always ahead of the curve in terms of regulatory
changes. A big challenge for the industry is the implementation of the Solvency
II Directive concerning insurance companies, which we are gearing up to meet. But,
we suspect that the additional costs of Solvency II could make some smaller
market players uncompetitive and lead to consolidation in the market.”

“A big concern for
partners is the security of clients’ assets and this is why Luxembourg’s
“Triangle of Security” is so advantageous, as it guarantees protection for the
assets of policyholders from the custodian banks where they are held.”

How widely understood are your products
and services?

“In general, the concept
of privatbancassurance is now widely recognised, but the tax and regulatory
environment changes all the time and there is a need for on-going explanation
to advisers. Lombard’s solutions are well
understood amongst our partners in the private banking world, but there is room
for greater awareness to be developed across the broader wealth management sector.”
 

How big is your business? How has growth
been over the past 10 years?

This year, Lombard hit €20
billion in assets under management, which coincides with our 20^th
anniversary celebrations. In terms of growth, our compound annual growth rate
exceeds 20 per cent per annum over the past 10 years and we’re confident we can
continue to grow strongly in future. In fact, our assets under management have
doubled in the past 5 years.

To view more about Lombard International Assurance, click here.