Jan
30
India’s Life Insurance Market Slowing Down
Filed Under Asia, Life Insurance | 1 Comment
India’s life insurance industry, once one the strongest performing sectors in the country, has seen its growth prospects curtailed in the past year due to regulatory restrictions, competition, and limited investor activity, according to a new report.
New data released this week by the Insurance Regulatory and Development Authority (IRDA) reveals that new business premium income for India’s 24 active life insurance companies fell by a considerable 17 percent to INR719.53 billion (US$14.49 billion) in the first nine months of the 2011-2012 fiscal year. Excluding sales of group policies, the drop would be even more severe at 33 percent to INR391.3 billion (US$7.8 billion), down from INR866.9 billion (US$17.46 billion) a year prior. The data indicated that there had been a fall in the overall number of life policies sold over the past year. While the life insurance industry sold 30.68 million policies in FY2010-11, it has only been able to sell 27.24 million so far this fiscal year, an 11.21 percent decline. The rate of increase in renewal premium income also dropped from 10 percent to 4 percent this year.
India’s private life insurance companies have largely born the brunt of this decline in premium volume. According to the IRDA statistics, the number of new life policies issued by private sector insurers has fallen by almost 30 percent over the past three quarters, from 7.9 million issued in 2010 to 5.6 million this year. This has occurred while the number of sales by India’s largest public sector life insurer, Life Insurance Corporation (LIC) of India, dropped by a more modest 4.6 percent, to 21.67 million new policies this fiscal year. During the April-December reporting period, the IRDA noted that LIC’s premium collection had fallen by 15.86 percent, while the private sector cumulatively saw their premiums drop 20.34 percent. While LIC reported INR520.5 billion (US$10.48 billion) in new written premiums, private insurers only collected INR199 billion (US$4 billion). Almost every insurance company in top 20 registered a drop in premium income, with the larger private insurers like SBI Life and ICICI Prudential reporting a decline of 19 percent and 33 percent, respectively. According to the IRDA data, the only private sector insurer to register a marked increase in income over the past fiscal year has been Metlife, a relatively new market entrant.
Indian insurance market analysts have blamed this industry-wide drop in premium income on a host of factors, including the continued absence of adequate pension products in the life market, investor indifference on once popular unit-linked insurance products, volatile market conditions, and delays on necessary product and distribution innovation. India’s life insurance sector has seen numerous regulatory developments over the past few years, not all of them welcome by market participants. The IRDA’s recent rulings on charges and agent productivity have made underwriting profitability and distribution even bigger challenges for life insurance companies going forward.
New regulations that restructured unit-linked pension products in the third quarter of 2010 have certainly impacted the life sector in a negative way. In November 2010, the IRDA unveiled new guidelines for unit-linked pension products offered by life insurers, which governed what kind of guaranteed-returns they must provide to policyholders. This caused quite a commotion in the life insurance market, with insurers arguing that they wouldn’t be able to provide such products as there are not enough long-term fixed instruments with adequate maturity available to match the tenure of Indian pension plans. After much furor, the IRDA relented and revised their norms in November 2011. The new guidelines allowed life insurers to set their own minimum guarantees on pension products but also mandated that these rates be applied irrespective of when the policyholder chose to surrender his policy. As a result, pension policies that conformed to the old norms had to be discontinued by December 31, and with no new pension products yet approved the IRDA, there is now a tremendous vacuum in the market with no pension products on offer from any Indian life insurer.
As the IRDA imposed their stiff norms on unit-linked policies, the life insurance industry moved towards conventional products. Conventional policies, such as money back or traditional pension policies, are different from unit-linked insurance policies as they are not linked to equity market behavior, with investments guided by regulations not annuities. The profitability on these single premium products is however much lower for companies, as it is a one-time sale and the insurer does not earn premium on a regular basis. This has forced companies to slow down their expansion strategies and work with thinner margins. Unit-linked pension products (Ulips), which accounted for over 30 percent of the life insurance industry’s premium income in FY2010, now amount to little over 2.6 percent of life insurer bottom lines. Given these regulatory issues, ongoing global economic volatility and inflationary pressures, sales of unit-linked policies are not expected to pick up in the short term. Overall, analysts expect fewer Ulip products to sell as people look for more concrete guarantees during these tough economic times after seeing the net asset value of their investment decline in the past year.
While Indian life insurance companies may battle with regulatory and profitability issues in the short term, the longer term forecast for their market of course remains quite bright. According to a recent Bricdata report, India will likely become the third-largest life insurance market in the world by 2015, behind only their fellow Asia-Pacific rivals China and Japan. At present, India is the 12th largest life insurance market in world and 4th in Asia.
According to Bricdata, India’s population growth and low insurance penetration rate combined with the rising awareness of the need for sufficient protection and savings services, especially amongst the younger generation, will be the key growth factors for the domestic insurance industry going forward. Furthermore, India’s domestic life insurance companies could look to make a major mark on the international insurance industry if they are able to improve their business models and capitalize on the tremendous potential available in their perhaps lucrative home market.
Jan
9
Ongoing Confusion over Foreigners’ Inclusion in China’s Social Security System
Filed Under China, China insurance, Expat Insurance, Health Insurance, Income Protection, Life Insurance, Medical Insurance | Leave a Comment
There continues to be continued uncertainty over whether, as well as how, China is going to include foreign workers in the nation’s social security scheme, with only 3 cities so far, including the nation’s capital, having committed themselves to registering and taxing foreign employees.
The inclusion of foreigners in China’s social security taxation structure is part of China’s health care reforms and the modernization of the country’s social welfare structure to accommodate such reforms. Through taxing expatriates, China offers them access to a number of things through the social security system such as unemployment insurance, pensions and basic medical cover. The scheme requires that the employer pays a tax of 37 percent of the employees’ salary to the state, while the employee contributes a further 11 percent, although contributions are supposed to be capped at three times the average salary in any city.
The plan to include foreign expatriates in China in the social security taxation scheme was initially announced by the central government in July of 2011, and foreigners were supposed to have commenced paying into the social security scheme in October. However, while the Chinese central government announced the new taxation on expatriates, it is the local authorities who are supposed to be implementing it through the registration of foreigners and a mechanism for how to actually pay into the social security system.
The lack of clarity over how the process should work, as well as the relatively short timeline to put necessary frameworks in place in many localities, has resulted in much confusion all around. Beijing was the only city ready to begin registering foreign workers, and even that has been rumored to be fairly unorganized.
However, two new cities have begun registering foreigners to comply with the new tax law, namely Tianjin and Suzhou. Other large centers of commerce in China, such as Shanghai, Guangzhou and Shenzhen have so far not begun to implement the new taxes for the social security scheme.
On top of the general bureaucratic chaos, both companies and their foreign employees have great concerns over the new tax and its implications. Many companies are concerned that in a business climate where it is increasingly more expensive to do business in China, the tax on expatriates’ salaries would become a drain on both business growth and foreign investment.
Foreign employees on the other hand are concerned that since much of their rights as workers are linked to their work visas, they will most likely never see the benefits they have been paying for. When expatriates lose or finish their employment in China, they must leave the country, largely rendering the benefits of the social security scheme moot.
Only in December did state media outlet Xinhua cite an unnamed social security official in Beijing as saying that foreigners who leave China will have their pension accounts kept, until they return to the country, retire, or submit a written application to drop the scheme. Although given the fact that this came out three months after people were supposed to have started paying into a scheme which they may or may not see the benefits from, it may only serve to further the sense of confusion surrounding the new taxes. While the social security scheme is similar to many other countries which include both citizens and foreigners, much needs to be done in order to clarify the scheme in order to make it reasonable.
Dec
16
India May Soon Let Insurers Form Subsidiaries & JVs Overseas
Filed Under Asia, Expat Insurance, Government Regulation, Health Insurance, Insurance Company, Joint venture, Legislative Reforms, Life Insurance, Medical Insurance, general insurance | Leave a Comment
Indian insurance regulator IRDA (Insurance Regulatory and Development Authority) is currently drafting guidelines which would allow Indian insurance and reinsurance companies to open branch offices, subsidiaries or joint-ventures overseas.
IRDA is currently circulating preliminary draft guidelines on what would be required of Indian insurance companies in order to allow them to open operations overseas. As the drafts circulate among domestic insurance companies, IRDA is asking for feedback from insurance companies before the end of 2012.
Many of the preliminary guidelines appear to be aimed at ensuring that domestic Indian insurance companies seeking to commence overseas operations are on solid financial footing to do so, and that doing so would not pose risks to local business and policyholders. As it stands now, domestic Indian insurance companies are not permitted to expand overseas, either through branch offices or investment in foreign firms, while foreign companies can currently own stakes in domestic insurers of up to 26 percent.
The draft allows for insurance companies of any category to apply to the regulator for permission to open foreign businesses after the insurers have been in operation domestically for 10 years. The proposed regulation would allow domestic insurers to start a foreign operation in a number of ways, either by opening branch offices, the formation of foreign subsidiaries by controlling the board or owning 50 percent of the paid-up equity capital, or by starting a foreign joint venture.
While many insurance companies in India have joined with foreign insurers to make joint ventures, any company that a domestic Indian insurer engaged with overseas to create a joint venture outside of India would not be allowed to enter into the domestic Indian insurance market.
Although there is a drive to make certain that Indian companies wishing to start operations abroad will have the financial wherewithal to do so without putting domestic business at risk, there are no concrete financial guidelines at the moment, whether with regards to the minimum net worth necessary to apply to the regulator for authorization or the capital requirements for establishing joint-venture’s overseas. However, the guidelines do mandate any losses incurred or capital requirements that must be met by foreign branches must be paid for by shareholder funds only, so as not to interfere with the policyholders’ funds in the domestic Indian business.
This could open a doorway to many opportunities for Indian insurance companies to globalize their business. In many places such as countries in the Middle East, there is a sizable Indian Diaspora which some insurers may already be considering tapping in to, however the opening of an office would also allow them to underwrite local business as well as expatriate Indians.
Dec
12
India Insurance Sectors to Continue Growth, Alongside Emerging Asia
Filed Under Asia, Health Insurance, Life Insurance, Medical Insurance, general insurance | Leave a Comment
A recent forecast report by Swiss Re predicts that both life and non-life insurance lines in India, and indeed in many emerging economies, will see larger growth coming into 2012.
With the global economy poised to grow at only 2.9 percent, Clarence Wong, the Chief Economist Asia for Swiss Re sees three hurdles that insurers globally will have to overcome, namely the Euro debt crisis, emerging markets experiencing slower growth and greater inflation, and low government yields due to the prevailing economic climate.
However, Wong also sees India and other emerging markets in Asia outperforming developed markets. Wong says that “Emerging Asia is not decoupled from the developed economies and its growth is expected to slow while inflation is elevated. But policymakers have leeway to leverage monetary and fiscal policies to counter economic slowdown.”
While non-life insurance business in India seems to have performed well in 2011, growing 8.6 percent, the life insurance industry saw new business only grow by 2.5 percent for the year. This is largely seen as attributable to regulations from India’s Insurance Regulatory and Development Authority (IRDA), which were promulgated in September, 2010.
The regulations mandated that life insurance companies had to offer a capital guarantee on pension products as well as reducing the commission on unit-linked insurance products (Ulips), causing the Indian life insurance market to decline significantly. However, many see this as a good sign insofar as that it has pushed insurers and agents to reevaluate their business and products, leading to more cost-effective operations and investments.
Despite the steep decline in life insurance sales over the past year or two, Wong sees economic indicators pushing towards higher growth for life insurers in 2012. In expectation of slower economies and higher unemployment, life insurance premiums are forecast to rise by 4.5 percent across the Asia-Pacific region, while rising economic risks will whet appetites for more routine protection products. This could lead to an increase in life insurance premiums in India by 7.5 percent next year.
While non-life remained strong in 2011, the Swiss Re forecast expects the industry to slow slightly in 2012, coming down to 7.9 percent from 8.6 percent this year. This is somewhat expected, given the slowing economies in many countries around the world. However, many observers believe India’s non-life insurance sector will continue to outperform many developed economies based on continued desire for motor and health insurance products. Motor sales in India have been booming recently and the IRDA’s ruling that allowed health insurance portability between insurers makes the landscape more customer friendly.
According to Swiss Re, the rest of emerging economies in Asia are largely predicted to see strong growth in both life and general insurance industries over the next few years. Life insurance across emerging Asia is estimated to grow by a cumulative 9.5 percent in 2012, with China, Vietnam and Indonesia leading the way with 11 percent, 8.6 percent and 8.2 percent respectively.
Non-life insurance industries across emerging Asian economies are forecast to grow by a cumulative 10.6 percent in 2012, mostly due growing demand for personal accident and health insurance as well as an increasing number of car owners across the region. China Vietnam and India are expected to grow the most next year at 12 percent, 9.2 percent and 7.9 percent respectively.
The long term conclusions of the Swiss Re forecast largely mirror a Bricdata report earlier this month, with both having confidence that as economies start to normalize globally in 2012 and 2013, it will provide a solid macroeconomic background for further insurance growth and improved performance from investments.
Company Mentioned
Swiss Re
The Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life and health insurance as well as special lines such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.
Nov
21
Singapore’s resurgent life insurance sector may finally be showing signs of slowing down, according to a new report.
In their third quarter briefing released this month, the Life Insurance Association of Singapore (LIA) revealed that sales of new insurance products in Singapore slowed to a more ‘moderate’ 18 percent annual growth rate for the three months ending in September, down considerably from the 38 percent growth in sales reported during the first half of the year. The LIA is a non-profit trade body licensed by the Monetary Authority of Singapore (MAS), and represents the interests of 16 major life insurers and 3 life reinsurers who operate in the Southeast Asian country.
According to the LIA, Singapore’s life insurance industry accounted for a total of S$523 million (US$404 million) in ‘weighted’ new business premiums for the third quarter 2011 reporting period. The LIA calculates the weighted new business premium figure by adding 10 percent of the Single Premium Index (SPI) to 100 percent of the Annual Premium Index (API), with an adjustment for premium payment terms of less than 10 years. Overall sales growth has been tempered by cautious market sentiment as investors all over the world continue to worry about the pervasive debt contagion issues affecting the Eurozone and United States. The MAS expect the Singaporean economy to be sluggish in the first half of 2012, but could pick up later in the year if global markets stabilize.
During the period under review, the LIA attributed the life sector’s continued development largely to the performance of the bancassurance distribution channel, with savings-oriented products remaining particularly popular through the second half of the year. From August to September 2011, sales of weighted regular premium products in Singapore reached S$345.7 million (US$266.8 million) , marking a 19 percent quarterly increase over the same period last year. Single premium business meanwhile rose by 16 percent to S$177.3 million (US$136.8 million). Of this amount, the LIA noted that 16 percent of sales were accounted for by the Central Provident Fund (CPF), Singapore’s mandatory pension savings and retirement fund mechanism.
The Singaporean life insurance market is divided between players holding ‘normal’ licenses and those defined as market segment insurers (DMS). DMS insurance companies, currently comprised of the following multinational insurers Friends Provident International, Generali, Royal Skandia, Transamerica and Zurich International, are registered with the MAS to operate in only non CPF-related business and with certain minimum policy size restriction. In 2011, the LIA noted that normal license holders represented 95 percent of new sales, while DMS insurers accounted for the remaining 5 percent.
Singapore’s active life insurance companies have cumulatively paid out a total of S$3.69 billion (US$2.85 billion) to associated policyholders and beneficiaries so far this year. Of these payouts, the LIA detailed that only S$342 million (US$263.9 million) came as a result of death, critical illness or other disability claims, while the remaining S$3.34 billion (US$2.58 billion)came about from maturing policies. The association also noted that, as of second quarter 2011, Singapore life insurers were managing assets worth S$120.7 billion (US$93.15 billion), a 9 percent annual increase, with non-linked business accounting for S$96.4 billion (US$74.4 billion) and investment-linked policies making up the remaining $24.3 billion (US$18.75 billion) in assets. In terms of overall manpower, LIA member companies in the Singaporean life insurance industry now cumulatively employ a total of 5,108 office staff and 12,976 sales representatives.
Explaining the results in the LIA statement, Mr. Tan Hak Leh, the Life Insurance Association President, acknowledged that while the performance of Singapore’s insurance industry could be impacted going forward by ongoing global economic uncertainty, the emerging protection needs of Singaporean consumers should provide insurers active in the market with enough impetus to achieve sustainable premium growth. “Against the backdrop of intensified global economic uncertainties in the third quarter, the life insurance industry achieved a growth in new business of 18 per cent. It is critical that life insurance companies remain vigilant and proactively manage our business to safeguard the long term financial soundness of the industry,” Mr Tan Hak Leh commented.
In addition to gross life insurance sales figures, the LIA interim report also highlighted several other insurance industry trends occurring in Singapore this year. Through the first three quarters of 2011, sales of new health insurance policies in the small Asia Pacific island nation amounted to S$123 million (US$94.9 million), up 7 percent on the corresponding period last year. Of these new health insurance sales, the vast majority, 87 percent, went towards Integrated Shield Plans and associated riders, Singapore’s quasi-equivalent of private Medicare insurance. The growth in new health insurance coverage is driven by a wide-spread recognition of increasing medical costs, which have driven consumers to obtain Singaporean health insurance in greater numbers recently. The LIA was pleased to report that as of 30 September 2011, over 2.45 million lives are covered by health insurance in Singapore, well over half the population, with paid up premiums now totalling over S$842 million (US$650 million).
As for insurance distribution channel trends through to the third quarter, the LIA found that the 12,000-strong tied agency force had contributed almost half of all the new business written by Singaporean insurers for the year, bringing in 48 percent of all weighted new business sales in 2011 so far. This performance was accompanied by an uptrend in insurance products and services sold through banks, also termed bancassurance. Indeed, bancassurance now accounts for 35 percent of all new insurance sales in Singapore, up 8 percent from last year. Financial advisers meanwhile have contributed 13 percent of new insurance sales this year and other channels, including direct sales, have made up the remaining 4 percentage points.
The LIA also noted that consumer preferences for different types of insurance products in Singapore have remained fairly consistent over the past few years. Participating (par) whole-life insurance products have remained the most popular, accounting for 54 percent of new sales, while non-participating annuities and investment-linked products split the remaining business between them. Singaporeans clearly favour the dividend options mutual life insurance companies can provide them with.
In his concluding remarks, LIA president Tan Hak Leh reiterated that while Singapore’s double-digit growth rate in life insurance product sales may not likely continue unabated into the future, robust long term planning and savings options would become more important than ever in this time of global financial market uncertainty. “While we may not face a financial meltdown similar to that in 2008, we can see consumers exercising more caution in taking on additional financial commitments,” said Mr Tan, adding that “Nonetheless we strongly advise that consumers do not shelve plans for life insurance, as it becomes particularly essential in times of uncertainty.”
Nov
10
Manulife and Bank of China Solidify Partnership
Filed Under China, China insurance, Life Insurance | 1 Comment
Manulife Financial Corporation, Canada’s largest insurance company, has signed a new two-year cooperation agreement with Bank of China in a bid to further strengthen their bancassurance distribution network and sell more insurance products in the world’s second largest economy.
The deal was announced at a signing ceremony in Bank of China’s Beijing headquarters on Wednesday. The agreement will expand upon the existing partnership between the two firms, which has begun to bear fruit for both parties over the past 12 months. Through the terms of their updated venture, Manulife and Bank of China will strengthen their cooperative efforts on insurance and bancassurance distribution in Mainland China. At the same time, Bank of China will also be able to realize other business opportunities in North America. The framework of the new partnership agreement come into force immediately and the pact will continue for a minimum of two years.
Manulife has already established a presence in China through its joint venture wealth management and life insurance company, Manulife-Sinochem Life Insurance (MSL), which the Toronto-based insurer formed alongside China Foreign Economy and Trade Trust Co in 1996. Today, Manulife-Sinochem, which remains 51 percent owned by Manulife, has around 11,500 insurance agents, 1,100 employees, and branches in 49 cities throughout China. In May, the company signed an agreement with Bank of China, the country’s oldest bank, to distribute life insurance products through their bank branches in Beijing, Guangdong, Jiangsu, Shanghai, Shenzhen, and Zhejiang. The Bank has also become the custodian bank and distributor for Manulife’s other joint venture fund company in China, Manulife-TEDA Fund Management.
In his speech at the Beijing signing ceremony, Mr. Donald Guloien, President and CEO of Manulife Financial, explained that this new deal would enable both companies to grow their business and would build upon the bancassurance deal signed last May. “As more and more Chinese and Canadian companies and citizens look to each other’s home country for business opportunities, academic pursuits or simply as a holiday destination, we view closer cooperation between Bank of China and Manulife as an opportunity to realize business opportunities together.”
Mr. Guloien also noted that China, with its robust economy and growing middle class, will continue to be an important marketplace for all financial-services firms across Canada, especially considering the stagnant forecasts for growth in their mature domestic insurance markets. Indeed, Manulife’s decision to recommit to Bank of China follows similar moves made Canadian firms this season. In August, Power Corp. of Canada decided to enter China’s emerging fund-management industry with the purchase of a 10 percent stake in China Asset Management Co. for US$271 million. This was followed by Bank of Nova Scotia’s move in September to acquire a 19.99 percent stake in China’s Bank of Guangzhou for US$707 million. For Manulife, the bancassurance partnership between their joint venture life insurance company MSL and Bank of China will be an important source for growth in the future.
Xu Chen, a Bank of China General Manager of the Financial Institution department, was also on hand at the signing ceremony to express a similar degree of confidence in the business arrangement between the two firms. “I strongly believe that, Bank of China will continue to adhere to its customer-oriented banking philosophy, constantly and consistently offering high quality and efficient financial services to all customers. We are confident that this mutually beneficial cooperation will further promote our business development and achieve win-win prospects for both institutions,” Chen said.
China’s insurance industry has experienced rapid growth and development over the past decade and still has ample of room to grow as a result of generally stable economic forecasts combined with an under-penetrated protection market. Despite the volatility of the global financial market, Chinese insurers have remained attractive investment targets for large multinational insurance companies and investors from the financial-services sector. In 2010, total written premiums in the Chinese insurance industry reached US$221.4 billion, a 30.4 percent year-on-year increase. This considerable momentum has been able to continue through 2011 despite persistent international financial market turmoil and record catastrophe losses. According to the China Insurance Regulatory Commission (CIRC) interim report figures, total premium income reported by Chinese insurance companies exceeded US$123.95 billion during the first half of the year, a 13 percent rise on 2010 amounts. At the moment, China is ranked the sixth biggest insurance market in the world and as the second largest in Asia. Many industry observes expect the Chinese insurance market to overtake the United States and become the number one overall protection and investment market, possibly as early as 2020.
Manulife recognizes Asia as the most important market for the company’s future growth. Asia now accounts for over half (55 percent) of Manulife’s total insurance sales worldwide. Over the past nine months, the Canadian company has seen its insurance sales across Asia jump by 22 percent to US$902.4 million, with operations in Vietnam, Indonesia and the Philippines being the particular highlights. Going forward, the Toronto-based company will continue to focus on expanding insurance sales channels in these countries, in addition to innovating the range of their core offerings as the middle class consumer demand in these markets evolves and matures. Further investor involvement in this part of the world is only set to increase, as the emerging insurance markets in Asia are widely expected to outperform those in Europe and North America, with China likely leading the way.
Insurance Companies Mentioned
Manulife
Manulife (International) Limited is a member of the Manulife Financial group of companies. Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners.
Manulife-Sinochem
Manulife-Sinochem is a joint venture company between Manulife and China Foreign Economy and Trade Trust Company (a member of the Sinochem group). It was the first Chinese-foreign joint-venture life insurance company established in China. Manulife-Sinochem began operations in November 1996. To date the Company has more than 11,000 professionally trained agents and employees, providing financial and insurance services to over 500,000 customers. The company is now has operations in over 40 cities including Shanghai and Beijing, and in provinces including Guangdong, Zhejiang, Jiangsu, Sichuan, Shandong, Fujian, Chongqing, Liaoning and Tianjin.
Oct
21
Asia’s Life Insurance Gap Widens as Risk Aversion Rises
Filed Under Asia, Life Insurance | Leave a Comment
The aggregate mortality protection gap across 12 insurance markets in the Asia Pacific region has expanded significantly over the past decade, from US$16 trillion in 2000 to US$41 trillion in 2010, according to a new study published by global reinsurance company Swiss Re.
Swiss Re’s “Mortality Protection Gap: Asia-Pacific 2011” study is the first of its kind to track the mortality protection gap across multiple developed and emerging markets in the Asia Pacific region. The mortality protection gap is a deficit measurement that represents the difference between the income needed for a working person to maintain living standards for themselves and their dependents versus the actual amount of savings and life insurance in force that would be readily available to beneficiaries when the policyholder dies. Thus the mortality protection gap grows when the proportion of protection needed is not yet covered through either adequate insurance or savings plans. Swiss Re intend for their study to encourage the life insurance industry to better engage with the general public in Asia and to better educate them on the importance of life insurance matters.
Swiss Re found a sizeable gap in mortality protection across all developed and emerging Asia-Pacific insurance markets covered by the study, with China, Japan, India and South Korea tabling the greatest long-term savings deficit estimates. Overall the aggregate mortality protection gap in Asia grew by 10 percent annually over the past decade, from a US$ 16 trillion deficit in 2000 to US$ 41 trillion in 2010. According to the data, the Chinese mortality protection gap has widened the most in this time, moving from US$ 3.7 trillion to US$ 18.7 trillion at an 18 percent compound annual growth rate. India’s mortality protection gap also expanded at double digit rates, rising from US$ 2 trillion to US$ 6.7 trillion during the same period. Of the so-called developed Asian insurance markets surveyed, Japan has consistently posted the largest coverage gap, now at an estimated US$ 8.4 trillion, although South Korea’s deficit is now expanding at twice their pace, moving from US$ 1.8 trillion to US$ 3.6 trillion at a 7 percent annual growth rate in the past ten years. The life insurance gap in Australia meanwhile grew from US$ 540 billion to US$ 927 billion between 2000 and 2010, which was the fifth largest increase seen in the region.
According to Swiss Re, a typical family breadwinner should reserve around 10 times their annual salary towards life insurance protection for their spouse and children. However, the amount of protection currently in place for many Asians is simply not enough to protect their families should the primary wage-earner unexpectedly pass away. If you were to use India’s 2010 data for example, for every US$ 100 in protection income needed there is only on average US$ 7.4 available in savings and insurance, which equates to a massive US$ 92.6 mortality protection gap. Meanwhile, these gaps in coverage present an enormous opportunity for the international insurance industry, with Swiss Re calculating the cumulative value of Asia Pacific’s mortality protection gap to be worth US$ 124 billion in potential premiums.
Concerns about the extent of adequate life insurance protection across the Asia Pacific region have also been reflected in the results of another Swiss Re study conducted between April and May earlier this year. According to ‘Survey of Risk Appetite and Insurance: Asia-Pacific 2011,’ 20 to 40 year olds in the Asia Pacific region have become much more risk averse in the past few years, with medical costs and longevity concerns fuelling the need for greater insurance coverage and financial planning. The survey found that 40 percent of those polled across Asia believed that their families could struggle financially if adverse events, like an unexpected death, transpired. The same respondents identified insurance as an important protection too, despite policy uptake of pure life insurance products remaining quite low in many Asian markets.
As the economies of the Asia Pacific region continue to grow and develop, the demand of sufficient life insurance protection will rise in tow. While the large protection gaps apparent in populous Asian markets like China and India certainly offer significant premium growth opportunities for life insurers, developing attractive products and effective distribution channels is still proving to be a challenge. In the more mature markets such as South Korea and Japan, despite the insurance industry growth potential being more limited, large mortality coverage gaps will work to drive the development of protection and savings insurance products that are targeted at more high net worth customers.
Swiss Re’s research also revealed what life insurers need to do themselves to understand and attract the next generation of consumer in Asia. The main barriers to purchasing insurance in the region are cost and lack of available funds. However while this perception that life insurance is expensive remains, over half of Swiss Re’s survey respondents indicated that they would be willing to pay at or even above market value for a life insurance product that fit their needs. In fact, many respondents revealed that once the underlying cost of cover was known, it was less than what they had expected to pay for insurance. Paul Turner, Swiss Re Head of Client Management, Global Division believes that this gap in customer perception in Asia presents a clear opportunity for the international life insurance industry to promote the benefits of insurance and their strong value propositions in order to meet the specific needs of consumers, who put strong importance on value, reputation and financial security. “This perception gap in customers’ minds is an opportunity for the life insurance sector to reach out and provide greater clarity to consumers on the relative cost and value of pure life insurance, for example, by comparing the cost of insurance with that of a cup of coffee a day,” Turner concludes.
Companies Mentioned
Swiss Re
The Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life and health insurance as well as special lines such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.
Oct
17
German insurance giant Allianz SE has decided to withdraw from the Japanese life insurance market, effective from next year, in a bid to refocus on more profitable ventures elsewhere. From January 1, 2012 onwards, Europe’s largest insurer will halt the sale of new life insurance policies in Japan and focus only on managing existing contracts in the country.
In a statement released September 30, Allianz outlined its plans to terminate life insurance sales in Japan by year-end. The company reassured all existing policyholders in Japan that their service contracts would remain intact for the duration of their tenure. “There will be no changes for customers that hold an existing contract with Allianz Life Japan. Allianz Life Japan will fulfill all contractual agreements and continue to provide services for all existing insurance products,” the news statement read, adding that the company remained in a strong enough capital position to honor all outstanding obligations. Allianz’s five other units in Japan, including Allianz Fire & Marine Insurance Japan Ltd, will continue to operate as before, the company said.
Allianz had only just begun selling life insurance policies in Japan less than four years ago. The Group’s local subsidiary, Allianz Life Insurance Japan Ltd (Allianz Life Japan) was granted an insurance license from the Japanese Financial Services Agency on March 7th 2008. Allianz already provided property and casualty insurance (first European insurer to be granted a license in 1990), asset management, and a variety of banking services in Japan. The company’s local life insurance unit’s central focus was primarily dealing with single-premium variable annuity and variable whole life products in Japan. In 2009, Allianz Japan Life launched a new variable annuity product, marketed in conjunction with major Japanese financial institutions. According to the latest figures released for fiscal 2010, Allianz’s local Japanese unit added about 17,000 new policies for the year and generated Y127.5 billion (US$1.65 billion) in premium revenues. As of August, Allianz Life Japan employs 233 people locally and holds about 35,000 contracts and total assets worth 228.4 billion yen (US$2.97 billion). The company have reportedly planned to reduce their domestic workforce gradually through an early retirement scheme.
The decision to retreat from the world’s second largest life insurance market by Allianz comes amid a major sales slump since the start of the current fiscal year in Japan due to the prolonged stock market downturn and stubbornly low interest rates. Japanese stocks are projected by Reuters to fall by 12 percent in 2011, which would be the second successive year of losses, due this time to a sharp Chinese economic slowdown and the European sovereign debt crisis. In a depressed economic environment, life insurance companies tens to suffer the most because they are normally unable to adjust and reprice policies annually, as other general insurers can do. Many life insurance products come with a fixed guarantee level of income over the duration of the policy, which could last for 30 years or more given modern medical advances. This guarantee presents a mismatch problem for businesses who write these long-term policies when the economic outlook appeared very different, as is the case in Japan and many other parts of the world.
Another contributing factor has been the continued claims fall out from the record breaking earthquake and tsunami that hit the northeast coast of Japan earlier this year. Japanese life insurers have paid out over 128.7 billion yen (US$1.63 billion) in claims from the March earthquake, including 98.7 billion yen (US$1.25 billion) in life insurance payouts and a further 30 billion yen (US$380 million) in accident related insurance benefits from settling 12,520 claims. Usually these accident benefits would have excluded cover for earthquake-related damages, but the Life Insurance Association of Japan said members had agreed to pay out benefits without applying de jure policy restrictions, a previously unheard of occurrence in Japan. Japanese insurers remain relatively well positioned and capitalized to absorb the net losses from the record-shattering earthquake and tsunami, but the fallout from this catastrophic event could have unpredictable effects on the market going forward. It has thus become important for Japanese insurers to pursue acquisition opportunities overseas, to expand beyond their shrinking domestic market and diversify their risk portfolios to achieve sustainable premium growth.
For Allianz, withdrawing from the unprofitable Japanese life insurance market now gives them an opportunity to streamline their operations, gain a buffer against the impending Eurozone crisis, and to better prepare themselves for the upcoming Solvency II rules, which will require EU-based insurers to hold more capital to match outstanding risks by 2014. The German insurance conglomerate has also been in an acquisitive mood as of late, looking to diversify and invest in emerging economies to offset the stagnant growth prospects in mature insurance markets. Allianz Group has already established a presence in several key emerging Asian economies through joint ventures including: Bajaj Allianz in India, Allianz China Life, PT Asuransi Allianz Utama in Indonesia, Ayudhya Allianz in Thailand and Allianz Lanka in Sri Lanka. These operations have given The Allianz Group prime access to the rapidly developing Asian markets that are driving, in particular, the demand for protection, savings and investment products as the wealth of the substantial populations in these nations grow further. This trend looks set to continue following news that HSBC, Europe’s biggest bank, has contacted the firm about bidding for its lucrative non-life insurance operations in Hong Kong, Singapore, France and Latin America, in what could become a billion dollar deal. Allianz is also reportedly in talks this week about acquiring Poland’s number two insurer Warta SA. Through these moves, Allianz looks to maintain itself at the forefront of the international insurance industry despite operating in a difficult global economic environment.
Insurance Company Mentioned
Allianz
Allianz Group is one of the leading global service providers in insurance and asset management. With approximately 153,000 employees worldwide, the Allianz Group serves approximately 75 million customers in about 70 countries. On the insurance side, Allianz is the market leader in the German market and has a strong international presence.
Sep
20
India looks set to continue being one of the fastest growing insurance markets over the next decade, with rising income levels and awareness of risk management expected to drive a considerable demand for coverage solutions nationwide. Two new industry briefings released by India’s commerce chamber reveal that the country will be one of the few major insurance markets expected to deliver double digit growth rates across both life and non-life product lines, contributing around a tenth of total global premium growth by 2015. Indian insurers could furthermore make a significant mark and compete on the global stage if they are able to refine their business models and capitalize on the tremendous potential available in their home market.
The Associated Chambers of Commerce and Industry of India (ASSOCHAM), released statistics this week that forecast an 18 percent annual growth rate for India’s general insurance industry until 2015, with the market size increasing from US$9.8 billion at present to upwards of US$18.8 billion in five years time. Assocham based their industry projections on the increased consumer base for healthcare and automobiles, growth and investment in domestic small and medium enterprise, and a persistent demand for coverage options. “With this trajectory, India will be one of the fastest growing markets in Asia and globally – next only to China among major markets,” the report said.
According to Assocham, motor insurance will remain the largest business line in the non-life insurance sector, accounting for over 40 percent of the industry’s net premiums for the foreseeable future. India is slated to become the world’s third largest car market by 2020, behind China and the United States, with over 7 million automobiles expected to be sold annually in the country. This surge in supply in conjunction with updated road safety, coverage and infrastructure will drive growth in the motor insurance sector.
Increased spending on healthcare and infrastructure will also be integral to the further development of the general insurance industry in India. Total expenditure on healthcare, through government sponsored schemes and private sector activity, is expected to top US$200 billion by 2015 and this will create significant opportunities for the country’s emerging health insurance sector. According to Assocham Secretary General D.S. Rawat, through substantial investment and government involvement, health insurance may finally be gaining traction in India. “The health insurance segment will grow the fastest and account for close to 30 per cent of total industry premiums by 2015.” He remarked in the press briefing.
The Indian government’s upcoming 5-year economic plan, beginning April 2012, will call for nearly US$ 1 trillion in fresh infrastructure spending, updating and improving upon the country’s vast road, port, railway and power systems. This substantial investment will create many opportunities for the local insurance industry, which will need to provide cover for these new projects. Assocham predicts that engineering insurance coverage for new infrastructure projects will become a particularly important area for growth, and could develop further avenues for expansion across other commercial lines sectors as well. The private sector is also developing briskly, with the number of small and medium enterprises in India projected to rise by 20 to 22 percent over the next decade. The trade body noted that the number of companies competing in the general insurance market had already increased from 16 in 2007 to 24 in 2011, and more would be forthcoming as more government and private sector business opportunities emerge.
India’s life insurance market also presents significant growth potential. In a separate report, Assocham noted that the life sector’s annual gross written premiums of US$5.6 billion would grow by 13 to 14 percent annually and reach US$108 billion by 2015. Over the past decade, India’s life insurers reported a 28 percent rise in new business premiums, 27 percent in rise in annualized premium equivalent (APE) and a 25 percent increase in gross written premiums.
Assocham Secretary General D.S. Rawat, claimed however that while India’s life insurance market had already become one of the ten largest in the world, the local insurance industry still has to improve upon its performance standards. “The level of protection as measured by sum assured to GDP is about 55 percent relative to benchmarks in developed markets of 150 percent to 250 percent,” Rawat noted. India’s domestic insurance industry has been criticized for overtly focusing on selling short-term products and acquiring new business premiums at the expense of maintaining operational efficiency, profitability and customer retention. According to Assocham’s data, between September 2010 and March 2011, the life insurance industry has slowed down considerably, posting negative APE growth rates in successive quarters.
The Indian life insurance industry is of course learning from this. Insurers need to develop sustainable business models to solve their profitability issues and succeed in a more competitive market. Going forward, Assocham expects the industry will broaden their focus to readdress their agency model incentives to encourage selling more long-term savings and protection products to consumers. Insurance industry regulators are also likely to become involved in the near future to ensure that the Indian life market better conforms to international standards.
Assocham concludes their report by highlighting the rapid evolution of the Indian consumer and how this could affect the sale of insurance going forward. The emerging Indian middle class is at the forefront of the digital revolution, adopting the latest mobile technology and spending an increasing amount of their time and money digitally across networks. Over the next five years, mobile and internet driven micro-transactions in the country are projected to grow three to four times over. Thus it has become incumbent on insurers to enter this space to promote the value of insurance to consumers. Assocham believes this could in fact become a positive development for India’s insurance industry. “High-quality and low-cost broadband access through mobile and hand-held devices through 3G and 4G services will provide a unique opportunity to leap front legacy issues and drive innovations which can help unlock growth, reduce costs and enhance service levels.”
Organization Mentioned
ASSOCHAM
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) is India’s premier apex chamber of commerce, with a membership encompassing over 200,0000 companies and professionals across the country. Assocham works to represent the interests of all industry and trade in India. The organization lobbies the national Government on policy issues and interfaces with corresponding international organizations to support bilateral economic interests. Assocham was established in 1920 by promoter chambers and represents all regions of India.
Aug
11
On Wednesday, French insurance group SCOR announced that they had finalized the acquisition of Transamerica Re, a life reinsurance division of Aegon, for US$912.5 million. Life reinsurance is a growing business line that helps individual insurance companies pool their risks, and accounted for almost 40 percent of Scor’s operating profit in 2010. Following final approval from all relevant regulatory authorities, Scor will become the second-largest life reinsurance company in the United States.
The deal, in development since April 26, 2011, sees the Netherlands-based Aegon divest from the majority of its global life reinsurance activities, transferring some US$1.8 billion worth of assets, securities and corresponding liabilities to Scor. Half of the mortality portfolio transferred will be in cash and US treasury bonds with the remainder comprised of investment grade corporate bonds selected individually by Scor. According to a statement released by the Dutch company this week, the total cost of the transaction will be US$1.4 billion after tax, made up of US$900 million in cash from Scor and a further US$500 million in capital released. The select reinsurance businesses still retained by Aegon after this deal will be comprised largely of variable annuity guarantee operations.
Aegon acquired Transamerica Re in 1999 as part of its US$10.8 billion purchase of Transamerica Corporation. The Charlotte, North Carolina-based reinsurance company now covers operations in USA, Europe and Asia and employs 451 people. Transamerica Re annually writes roughly US$2 billion in gross premiums and last year reported underlying earnings before tax of US$105 million. The company has been successful, with nearly a trillion dollars worth of life reinsurance now in force worldwide, and remains a market leader in the annuity, risk management, capital release market and other lines in reinsurance business.
Now that the acquisition has been finalized, Transamerica Re’s existing management and employees will be reorganized and join the Scor Global Life team to form a combined entity, titled SCOR Global Life Americas, which will be managed by former President of Transamerica, Paul Rutledge. Mr. Rutlegedge will also join Scor’s executive committee. The Transamerica Re operations based outside of America will incorporate within their local SCOR Global Life office. Scor have already defined their Global Life operational and functional responsibilities for each market. Scor has been quick to assure both their clients and Transamerica’s that a smooth transition was underway and that policyholders would soon benefit from the reinforced service offered by the combination of their two businesses, without any disruption to existing coverage and support.
According to Scor, the acquisition of Transamerica Re will expand their life reinsurance business considerably, boosting the total volume of premiums by nearly 50 percent overnight. The biggest impact will be felt in the United States, a lucrative reinsurance market that accounted for 87 percent of Transamerica Re’s underwriting business in 2010. Scor has been looking to strengthen its position in major life reinsurance markets like the US as part of the company’s 2010-2013 strategic plan, titled “Strong Momentum.” The plan broadly targets improved profitability and solvency and a rebalance between life and non-life contribution inside Scor’s portfolio. In accordance with this strategy, Scor agreed to sell its US fixed-annuity business for US$55 million in February 2011 in order to free up capital for expansion of its core life reinsurance businesses. The French reinsurer has also recently acquired the entire capital of Solareh SA, in a move to better develop value added services for its insurer clients.
For Aegon meanwhile, the decision to divest from Transamerica Re is consistent with its revamped focus on growth and earnings within their core business of life, pension and asset management, all while improving upon its risk-return profile. Aegon, with significant exposure to mature American and European markets, was one of the hardest hit multinational insurers when the financial markets collapsed in 2007-2008, and called upon the Dutch government for a bailout to avoid a complete collapse. Earlier in the year, Aegon planned to use the funds it would receive from Scor to complete a final €1.12 billion (US$1.61 billion) payback to the Dutch state. However, on July 15 the company announced that all outstanding payments to the state, a total value of €4.1 billion (US$5.89 billion), had already been completed. With that burden now lifted, Aegon can devote its energy and significant resources to both streamline its operations in the West and attempt to capitalize on the rapidly developing insurance markets in the East.
Insurance Companies Mentioned
AEGON
AEGON is present in more than 20 countries in the Americas, Europe and Asia, employing 28,000 people and serving more than 40 million customers. AEGON’s ambition is to be a global leader in helping its customers secure their financial futures and, in doing so, to grow its businesses profitably and sustainably. AEGON products include life, pensions, life reinsurance, individual savings & retirement products.
Transamerica Reinsurance
Transamerica Reinsurance is a division of Transamerica Life Insurance Company, formerly an AEGON company. It is one of the largest life reinsurance companies in the US, offering broad capabilities in risk, capital and expense managements to help companies improve the competitiveness and profitability of their life and annuity products. Transamerica Reinsurance supplies automatic and facultative reinsurance, product consulting and development and alternative underwriting solutions to more than 500 companies in North America, Asia-Pacific, Latin America and Europe.
Scor
Scor is organized through two main businesses – SCOR Global P&C and SCOR Global Life – which are leading underwriting and reinsurance providers. The group writes business in Europe, Latin America, Asia, the Middle East and the USA.
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