How can fund managers penetrate insurance markets?
Insurance products are some of the most established and well-known financial products in the region.
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.
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.
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.
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.
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
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.
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.