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Despite slowing growth in some markets, investment-linked product assets remain sticky
December 2019, SINGAPORE—Although the investment-linked product (ILP) segment in Asia ex-Japan has largely underperformed in recent years, it still provides opportunities for fund managers in the region, as insurers continue to shift their focus away from guaranteed products.
ILPs’ overall marketshare in Asia ex-Japan and Thailand declined from 13.5% of total life insurance premiums in 2014 to 9.8% in 2018. In terms of premiums, ILPs recorded double-digit growth in 2018 in Taiwan, Indonesia, Malaysia, and the Philippines, but fell in China and Singapore. The trend is reflected in assets as well, with China shrinking by 5.7% year-on-year, and Indonesia and Taiwan recording growth of 6.3% and 5.3%, respectively.
However, even if growth in ILP premiums periodically slows, assets remain sticky in this space. Opportunities for asset managers to wrap their funds in insurers’ ILPs are more prevalent in Southeast Asia, given that these products dominate most markets in this sub-region. In the Philippines, Malaysia, and Indonesia, ILP marketshares stood at around 50% or more of premiums, while the more developed markets, including Taiwan, Hong Kong, Korea, and Singapore, have lower shares, ranging from around 11% to 30% in 2018. In China, ILPs make up only 1% of total life insurance premiums.
Indonesia is a promising market for unit-linked products (ULPs) because of booming sales through banks and agents. Premium income grew 17.8% from IDR69.2 trillion (US$4.8 billion) in 2016 to IDR81.6 trillion in 2017. Data from the Indonesian Life Insurance Association (AAJI) showed that ULPs contributed 57.9% of the industry’s total new business premiums during the first quarter of 2019. Some managers told Cerulli that they want to focus on the ULP segment of insurance companies, as the money is stickier and distributors have more incentives to sell these, due to their higher trailer fees. Furthermore, ULPs are less risky for life insurers as they do not have to shoulder investment risks, except for those products with guaranteed returns.
In Malaysia, growth in in-force annual premiums and contributions for both the life insurance and family takaful sectors in 2018 was primarily driven by ILPs, evident in the steady year-on-year increase in the proportion of premiums and contributions coming from these plans. Furthermore, the ILP business was reportedly six to 10 times more profitable than traditional insurance products in the same year.
“ILPs offer more flexibility to insurers than guaranteed products as they do not have guaranteed return rates. Moreover, compared to other retirement products, fund managers’ opportunity to access the growing insurance retirement segment is largely through ILPs, particularly in markets such as Taiwan and Hong Kong,” said Ye Kangting, research analyst with Cerulli.
She added, “As most ILPs across the Asia Pacific are structured around actively managed fund portfolios comprising mainly equities, asset managers could consider partnering with life insurers to develop new ILP offerings that have exposure to a wider range of underlying asset classes and products, including foreign-currency denominated products. Managers should continue their conversations with life insurers even in markets with slowing ILP sales, as ILP assets will continue to be attractive because they are sticky.”
NOTES TO EDITORS:
These findings and more are from: The Cerulli Edge—Asian Monthly Product Trends Edition, December 2019 Issue.
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