Statistical bulletin: MQ5: Investment by Insurance Companies, Pension Funds and Trusts, Q2 2011

Key points

• Net investment was £15.6 billion in the second quarter, close to the average level of the preceding three quarters.
• Most of this net investment was accounted for by the unit and property unit trust sectors and by general insurance.
• There was investment in most asset groups in the second quarter, though there was continued disinvestment of UK corporate securities.

Overview

This release contains quarterly net investment data arising from financial transactions (investments) made by insurance companies, self-administered pension funds, investment trusts, unit trusts and property unit trusts. Quarterly balance sheet data for short-term assets and liabilities are also reported. Income and expenditure data are provided for insurance companies (quarterly and annual) and self-administered pension funds (quarterly). In addition, annual balance sheet data, providing information on the market value of assets and liabilities, are reported for all sectors. Data are compiled from a series of quarterly and annual surveys.

Net investment by asset type

The total assets of the businesses covered by this release totalled over £2,700 billion at the end of 2009. In any quarter these businesses can acquire over £400 billion of assets and dispose of broadly the same level. Net investment is the difference between these substantial levels of acquisitions and disposals. It can therefore be volatile.

Over the past four quarters, net investment is estimated to have been £73 billion. This is slightly below the levels of £85 to £95 billion recorded in 2006, 2007 and 2009 but appreciably above the levels in 2008 or for the 2010 calendar year.

The figures for short-term assets have been volatile. The level of short-term assets is estimated to have risen slightly in the second quarter (a net investment of £2 billion). This follows an increase of £13 billion in the first quarter. However, over the last three years taken together, there was a reduction of £22 billion, so any trend cannot at this stage be clear.

The propensity to invest in British government sterling securities (gilts) depends both on how investors see the risks associated with alternative investments, and the yield on gilts. In the last two quarters, there has continued to be a positive net investment in gilts, though at rates lower than throughout 2010.

There is estimated to have been a slight disinvestment in UK corporate securities in the second quarter, though at under £2 billion this was lower than the average of almost £9 billion a quarter in the previous three quarters.

There continued to be investment in overseas securities in the second quarter. For the last seven quarters this has had the opposite sign to investment in UK corporate securities: when there has been investment in one, there has been disinvestment in the other.

Investment in 'other assets' was similar to the average levels of this series, which has not been negative since 2002. This series includes mutual fund investments.

Net investment by asset type

Table notes:

1. r = revised data 

   p = provisional data

Total net investment

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Short-term assets

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British government sterling securities

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UK corporate securities

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Overseas securities

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Other assets

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Net investment by institutional group

Net investment by long-term insurance companies was provisionally estimated at under £1 billion in the second quarter. In five of the previous six quarters there was disinvestment. From the last quarter of 2008 (other than in the second quarter of 2009), investment by this sector has been weak following appreciable investment from 2005.

General insurance companies showed positive investment in the second quarter (of over £2 billion). This continues the pattern of the preceding few quarters, following disinvestment in the first half of 2010.

Investment by self-administered pension funds was almost flat in the second quarter. This is a marked change from the preceding the three quarters when investment averaged £14 billion a quarter. Investment in all asset types fell back (see reference table C (69 Kb Excel sheet) ).

Trusts are estimated to have made an appreciable investment in the second quarter. Investment by unit and property trusts is estimated to have been around £11 billion in this period, a much stronger level than for the other institutional groups. It was close to the average quarterly level of investment for this sector during 2009 and 2010.

Net investment by institutional group

Table notes:

1. The consolidation adjustment is an adjustment to remove inter-sectoral flows between the different types of institutions covered by this statistical bulletin. The adjustment includes (i) investment in authorised unit trust units and investment trust shares by insurance companies, pension funds and trusts and (ii) investment by pension funds in insurance managed funds.

   r = revised data

   p = provisional data                                                                                                                       

Long-term insurance companies

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General insurance companies

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Self-administered pension funds

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Trusts

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Income and expenditure by institutional group

For long-term insurers, claims continued to run ahead of premiums, as has become the norm over the past four years.

For general insurers, premiums were around one-half higher than claims in the 2005 to 2008 period (that is, a ratio of three to two). In recent quarters, that ratio has reduced to nearer four to three. In the second quarter the ratio remained appreciably below three to two, although there was a slightly higher level of premiums while claims were little changed.

For self-administered pension funds, contributions (net of refunds) were, at just under £10 billion, rather below the levels of recent quarters. Payments, however, rose to over £12 billion.

Income and expenditure by institutional group

Table notes:

1. r = revised data

   p = provisional data

Long-term insurance companies' premiums and claims

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General insurance companies' premiums and claims

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Self-administered pension funds' contributions (net) and payments

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Background notes

1. Institutional groups

   Insurance companies
   These are active in both life insurance and non-life (general) insurance and they also conduct pension business on behalf of companies and individuals. Long-term business (mainly life insurance and pensions) has an emphasis on the spreading of risks over time, whereas general business is mainly concerned with the spreading of risks between persons and organisations.

   Besides consisting largely of life insurance, long-term business also includes occupational and individual pension business. Pension business includes both insured funds and insurance managed funds. Insured funds belong to pension schemes where the schemes trustees hold, as a sole asset, an insurance policy contract or an annuity contract. All the schemes assets are held in one insurance company and have a guaranteed level of return. Fully insured funds are excluded from the self-administered pension funds survey. Insurance managed funds are also included in the self-administered pension funds statistics.

   The figures for long-term funds include items relating to shareholders' funds in respect of pure life companies. For other companies these items are consolidated into the figures for general funds.

   Self-administered pension funds
   The data relate to the self-administered pension and superannuation funds of the private sector and to the funded, self-administered schemes of local authorities and employees previously employed in the nationalised industries. The main superannuation arrangements in central government are unfunded and these are excluded from the statistics. Fully insured funds are also excluded but their activity is included in figures for insurance companies' long-term business. A self-administered pension scheme is defined as an occupational pension scheme with units invested in one or more managed schemes or unit trusts. The trustees of these types of schemes can employ either an in-house fund manager to make the day-to-day investment decisions or they can opt to use an external manager to manage the investment.

   Investment trusts
   The figures cover investment trusts recognized as such by HM Revenue & Customs for tax purposes and some unrecognized trusts. Investment trusts companies acquire financial assets with money subscribed by shareholders or borrowed in the form of loan capital. They are not trusts in the legal sense, but are limited companies with two special characteristics: their assets consist of securities (mainly ordinary shares) and they are debarred by their articles of association from distributing capital gains as dividends. Shares of investment trusts are traded on the Stock Exchange and increasingly can be bought direct from the company.

   Unit trusts
   The data covers unit trusts authorised by the Financial Services Authority under the terms of the Financial Services Act 1986. The statistics include open ended investment companies but they do not cover other unitised collective investment schemes (for example, unauthorised funds run on unit trust lines by, for example, securities firms and merchant banks, designed primarily for the use of institutional investors) or those based offshore (Channel Islands, Bermuda etc.) or in other EU Member States. Unit trusts are set up under trust deeds, the trustee usually being a bank or insurance company. The funds in the trusts are managed not by the trustees, but by independent management companies. Units representing a share in the trusts' assets can be bought from the managers or resold to them at any time.
   

   Property unit trusts
   The statistics aim to cover all UK property unit trusts authorised under the terms of the Financial Services Act 1986. The trusts are not allowed to promote themselves to the general public and participation is generally restricted to pension funds and charities. Property unit trusts invest predominantly in freehold or leasehold commercial property, yet may hold a small proportion of their investments in the securities of property companies. Their assets are held in the name of a trustee and are managed on a co-operative basis by a separate committee (elected by the unit holders) or company.

2. Basic quality information
   
   A Quality and Methodology Information (QMI) report (270.2 Kb Pdf) can be found on the ONS website. The aims of the QMI report are to provide users with a greater understanding of our statistics, their quality and the methods that are used to create them.

3. Uses of data

   The primary use of data from the insurance companies, pension funds and trusts surveys is in the Financial and Sector Accounts and the compilation of Gross Domestic Product (GDP) estimates within the UK National Accounts and the Balance of Payments. There are numerous other users within and outside government who use the data to produce various financial analyses and to inform policy decisions. Such users include:

   • Bank of England,

   • HM Treasury,

   • Department for Work & Pensions,

   • HM Revenue and Customs,

   • Association of British Insurers,

   • The Pensions Regulator,

   • Department for Business, Innovation and Skills,

   • Financial Services Authority,

   • European Union's Statistical Office (Eurostat),

   • Organisation for Economic Co-operation & Development (OECD),

   • European Central Bank,

   • Trade associations, city analysts, forecasters, institutional investors and fund managers,

   • Academics, students and journalists.

4. Revisions

   Quarterly
   The first quarter of 2011 has been revised, partly as a result of late questionnaires being received and partly as a result of disaggregate data revisions. The 2010 quarters will remain provisional until the results of the 2010 annual surveys are processed and published in late 2011.

   In the first quarter of 2011, net investment has been revised from £17.0 billion to £22.1 billion.

   Revisions to data provide one indication of the reliability of key indicators. The table below shows summary information on the size and direction of the revisions made to the data over a five year period. A statistical test has been applied to the average revision to find out if it is statistically significantly different from zero. An asterisk (*) shows that the test is significant. The table covers estimates of combined total net investment first published from December 2003 (for 2003 Q3) to September 2008 (2008 Q2).

   Revisions between first publication and estimates three years later

   £ billion

   	Value in  latest  period	Average  revision over  the last 5 years	Average revision over  the last 5 years  without regard to sign
   Total net investment	15.6	0.5	5.3

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   A spreadsheet is available giving a revisions triangle (127.5 Kb Excel sheet) of estimates from 1996 to date and the calculations behind the averages in the table.

   Annual
   The introduction of the annual results with the third quarter figures each year leads to revisions, both to income and expenditure and to transactions in assets. For income and expenditure these are due to the incorporation of the annual insurance survey results which are based on larger samples and also, generally, audited accounts. For transactions data, they are due to problems with misreporting by companies in the quarterly series that are identified as part of the quality assurance of the annual data.

   For each set of surveys (for example; the quarterly survey into pension funds transactions in financial assets and the quarterly survey into pension funds income and expenditure) there is a common sample, but each survey is conducted independently, resulting in different response rates; the forms are sometimes completed by different people within the business; and there is limited linkage within the existing systems between surveys at the individual respondent level. Therefore, there can be discrepancies at an aggregate level between the numbers emerging from the income and expenditure survey and the transactions survey. The set of annual surveys includes balance sheet data from the three sectors and this allows the figures to be aligned so that income and expenditure, transactions and the balance sheet are consistent. The alignment process assumes that the transactions data are the weakest of the three strands of information and therefore take the necessary adjustment. This has been confirmed by contact with respondents when figures have been queried.

   The following table shows the average absolute values and revisions (without regard to sign), over the last 5 years (2005 to 2009), arising from the take-on of the annual survey results

   Average values and revisions (2005 to 2009)

   £ billion

   	Average absolute values	Average absolute revisions
   Long-term insurance companies
   Total income	221.5	24.9
   Total expenditure	182.2	7.0
   Net Investment	26.9	14.5
   General insurance companies
   Total income	49.2	4.1
   Total expenditure	47.0	4.2
   Net Investment	6.8	4.7
   Self-administered pension funds
   Net Investment	13.9	7.6
   Total net investment	73.8	9.4

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5. Response rates

   The figures in this release are based on a system of quarterly and annual surveys collecting data on income and expenditure, transactions in financial assets and the balance sheet in separate surveys.

   Overall response rate by survey

   2nd Quarter 2011		%
   Transactions
   Long-term insurance companies		91
   General insurance companies		88
   Self-administered pension funds		86
   Unit trusts		87
   Investment trusts		94
   Property unit trusts		85
   Income and expenditure
   Long-term insurance companies		88
   General insurance companies		89
   Self-administered pension funds		80
   2009 Annual		%
   Balance sheet
   Long-term insurance companies		93
   General insurance companies		94
   Self-administered pension funds		87
   Income and expenditure
   Long-term insurance companies		99
   General insurance companies		93
   Assets and liabilities
   Unit trusts		82
   Investment trusts		93
   Property unit trusts		93

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6. General information

   These points should be noted when examining data tables:

   • Total pension contributions made to funded schemes cannot be derived by summing pension premiums from table 2.4 and contributions from table 4.3. To do so would result in double counting since pension business premiums in table 2.4 include any premiums (including transfers) received from self-administered pension funds and any transfers within the long-term insurance sector. More information on this and on other work undertaken to improve pension statistics as part of the 2002 pension contributions statistics review can be found on the ONS website. These pages include a discussion note on how insurance companies have been recording pension transactions in the surveys used as a source for this release and on improvements made to the survey questionnaires from the first quarter of 2004 to prevent mis-reporting.

   • Certificates of deposits issued by overseas banks are included in short-term assets overseas.

   • An increase in borrowing is indicated by a positive figure, a decrease by a negative figure.

   • Total net investment for long-term funds includes investment by self-administered pension funds in insured funds.

   • Loans to parent authority by local authority funds are included with UK local authority securities.

   • The consolidation adjustment is an adjustment to remove inter-sectoral flows between the different types of financial institution covered by this release. It has been calculated by identifying and calculating totals for net investment in mutual funds such as authorised unit trust units, investment trust securities and insurance managed funds by the institutions.

   • Figures in tables denominated in £ billion may not add up because of rounding.

   • As of the first quarter of 2011, within table B, new annual series identifiers for total asset holdings reported by insurance companies and self-administered pension funds have been introduced (RKBI, RKBY and RYIR), which reflect the more comprehensive data collected by the annual surveys rather than the less detailed quarterlies. The data are now consistent with those appearing in tables 2.3, 3.3 and 4.2. These changes required a new series to be created for total asset holdings covering all the sectors (KI2V). There was also a knock on effect to table A, where new identifiers were needed to ensure the correct data for the following series continued to be reported: other assets (KI2W), net inflow to life insurance and pension funds (KI2X) and other residual (KI2Y).

7. Release policy

   Details of the policy governing the release of new data are available from the Media Relations Office.

   National Statistics are produced to high professional standards set out in the Code of Practice for Official Statistics. They undergo regular quality assurance reviews to ensure that they meet customer needs. They are produced free from any political interference.
   
   © Crown copyright 2011.

   You may use or re-use this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence, write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gsi.gov.uk

   These National Statistics are produced to high professional standards and released according to the arrangements approved by the UK Statistics Authority.

8. Definitions and symbols used

   r revised data
   p provisional data
   † data have been revised since the last edition; the period marked is the earliest to have been revised.
   .. not available
   - nil or less than £0.5m

9. Disclosure

   It is sometimes necessary to suppress figures for certain items in order to avoid disclosing investment activity by individual institutions. In these cases the figures are usually combined with those for another item and this will be indicated in the tables by means of a footnote.

10. Details of the policy governing the release of new data are available by visiting www.statisticsauthority.gov.uk/assessment/code-of-practice/index.html or from the Media Relations Office email: media.relations@ons.gsi.gov.uk

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