How can fund managers penetrate insurance markets?

Insurance products are some of the most established and well-known financial products in the region.

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Key Implications


  • Fund managers can access Asian markets by partnering with life insurance companies to produce investment-linked products (ILPs).

  • Insurers are looking to provide broader range of strategies, such as multi-asset, to serve as underlying funds in their ILPs.

  • BlackRock and Taiwan’s ShinKong Life Insurance partnered to develop the market’s maiden annuity ILP with BlackRock’s target-date funds (TDFs) as the underlying investment.

  • There is ILP opportunity for fund managers in Taiwan and Hong Kong, which have high life insurance penetration. 

  • While China’s ILP market could be massive, fund management opportunities are largely limited to insurance asset management companies and affiliate managers.


Hong Kong


Pros

In Hong Kong, despite suffering from a backlash several years ago after complaints of mis-selling, ILPs—locally known as investment-linked assurance schemes (ILAS)—remain among the most accessible mutual fund distribution platforms in the region. In 2018, Hong Kong insurers recorded HK$17.4 billion (US$2.2 billion) in new linked office premiums, up 36.7% on the previous year.

In 2018, Manulife remained the largest ILAS provider, contributing 55.4% of the industry’s new premiums, and 24.5% of the industry’s in-force ILAS business. AIA and Sun Life led in terms of growth in new ILAS business, as new premiums more than quadrupled in 2018 to HK$3.5 billion and HK$1.2 billion, respectively.

Cons

It remains to be seen how the political unrest in Hong Kong will affect these products’ underlying domestic investments. Furthermore, the availability of other, more retirement-friendly products, such as the new qualifying deferred annuity policies (QDAPs), may pose competition to ILAS as retirement instruments. 

Asia ex-Japan Life Insurance Investment-Linked Product Assets, 2014–2018 (US$ billions)

Sources: Regulator websites, Cerulli Associates Analyst Note: Hong Kong, Thailand, Malaysia, and the Philippines are excluded from the analysis. 1Includes retirement, retirement pension, and variable ILP assets. 22018 figure is estimated.

Taiwan


Pros

Backed by a high savings rate, Taiwan has one of the region’s most vibrant insurance retirement markets. ILP assets in the market have been steadily growing for more than five years, at a compound annual growth rate of 6.9% between 2013 and 2018. Life insurance products practically serve as the main third-pillar retirement instruments in this market.

Fixed-maturity bond funds continue to gain traction in Taiwan. Due to the boom in its ILP premiums in 2018, Nan Shan Life saw its ILP assets rise from NT$82.4 billion (US$2.8 billion) in 2017 to NT$131.1 billion in 2018. Taiwan Life was the other insurance company benefiting from its double-digit ILP premium growth, as its ILP assets increased by 29.2% y-o-y in 2018.




Asset managers and insurance companies can expand their product repertoires to include emerging themes in discretionary ILPs—target-date funds are potential candidates. In November 2018, BlackRock and Taiwan’s ShinKong Life Insurance partnered to develop the market’s maiden annuity ILP with BlackRock’s target-date funds (TDFs) as the underlying investment. TDFs’ glidepath feature can help meet the expected benefit payments with the low-risk assets, while the high-risk investments offer value-added returns.

Cons

It is mostly the smaller insurers that are open to working with external managers. Large players have capabilities to invest their general account funds on their own, including overseas. Still, more of them do work with external managers for their underlying ILP funds. Also, volatility in 2019, mainly due to the U.S.- China trade tensions, made ILPs less attractive relative to other products.

 

Types of Individual Tax-Deferred Commercial Pension Insurance Products in China

Sources: China Banking and Insurance Regulatory Commission, Cerulli Associates

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China


Pros

Longer-maturity universal insurance will likely remain attractive as insurers try to entice buyers with offers of generous and guaranteed returns. We expect Chinese insurers to continue to seek decent returns and work with fund managers that can deliver stable cash flows to help them meet payouts. In 2018, Taikang Life and Hongkang Life were the insurers among the 10 largest to see ILP asset growth.

Cons

ILPs are still nascent in China, and their development has been constrained by tightened regulations and the volatile stock market. The insurance regulator’s crackdown on short- and mid-term life insurance products led to a slowdown in ILPs and universal life insurance products. ILP assets declined 5.7% year-on-year to US$20.4 billion in 2018.

The regulatory cat-and-mouse game will likely continue to create uncertainty in the ILP business as the country tries to strike a balance between enforcing prudential regulations and encouraging market competition. This, coupled with insurers’ preference to manage such products in-house or with affiliates, is likely to result in limited outsourcing for the time being.



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