Transcript 140th Anniversary Marketing featuring “Simplified”

Unit Linked Products
Yannis Vasilatos
November 2013
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Definition
UL
PRODUCTS
Premiums are invested directly in a
pool of assets. Returns to the
policy-holder are dependent on the
performance of the investment
pool. An insurance element is
always attached.
The policyholder bears the
investment risk.
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Types of U L products
CATEGORY
Pure UL without guarantees
Hybrid products
Variable annuities
BRIEF DESCRIPTION
A pure financial savings product, linked to the performance of a
particular portfolio, with no financial guarantees attached, but which
pays the market value of the units at the earlier of maturity, death or
surrender.
They combine merits of traditional participating life insurance and UL
products by periodically shifting funds between the policy reserve stock
of an insurer (with an interest rate guarantee), a guarantee fund and /
or an equity fund.
The funds are placed with an insurance company and the policyholder
chooses how the money will be invested. The policyholder chooses
from a pre-selected list of guarantees; each guarantee caries a certain
cost.
Structured UL
UL guarantees are ensured by periodically allocating assets to risk-free
and risky investments; such a mechanism invests funds in a procyclical way and might lead to a cash-lock of the unit price during an
observation period.
Capital guarantee products
The capital guarantee ensures that the investment is protected from
market downturns.
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Main qualities of U L products
 Act as a vehicle of regular savings for the purpose of
building a personal pension fund.
 Flexible risk profile, tailored to the personal risk appetite
of the policy owner.
 Allow individuals with low available funds to invest in
sophisticated investment/financial tools.
 Regular premium UL products have an inherent
mechanism to absorb the effect of market volatility.
 Level of transparency on the performance of each policy
is higher compared to traditional insurance products.
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Main trends and opportunities
E
U
R
O
P
E
•
UL products are leading products in life insurance.
•
UL individual pension markets are continuously growing in Europe.
•
After the 2008 financial turmoil, when UL policies‘ surrender
phenomenon registered a historical peak, the investment linked
insurance policies were the first to benefit from the financial markets
recovery during 2010 and later.
•
In 2010, UL premiums covered over 62% of total life insurance
premiums growing by 53% vs. 2009.
•
In 2011, UL insurance GWP grew by about 18.5%, vs. 4.3% growth for
the Life market overall.
•
UL life insurance line represents now a 40% share of the entire
C.E.E. life market.
•
Strong customers’ demand for guarantees within UL products.
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Country examples
United Kingdom
It is the most
developed UL
market in Europe.
Growth is mainly
driven by individual
pension market and
offshore bonds.
Romania
Italy
The only market
where UL
business
experienced a
slowdown versus
Life market..
UL policies
performed well
by registering
growth of 8.1% in
2012.
EUROPE
France
The average
share of UL
products in total
reserves is
approximately
15% in 2012.
Poland
UL is the main
individual life
business line. In
2011 UL business
increased its share
in the market
portfolio by 5%.
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The Greek market experience
• U L products introduced in 1994.
• Launching was strong to be followed by a long period of
volatility before nearing maturity.
• Proved resilient during current financial crisis.
• Today UL products represent 21% of Life market GWP vs.
25% in 2008.
• Drove growth of the institutional investors market, adding
depth to asset portfolios with long term investment horizon.
• Main challenges related to delays in properly training sales
associates and building the right tools to educate
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customers.
Focus areas
• Growing interest in UL products
• ►Complex products
CONSUMERS
• ►The associated risks and costs are not sufficiently transparent to
policyholders
• ►Hybrid life insurance products which combine UL offerings with
some with profit and/or guarantee element
• In response by Regulators:
• ►Increased cost transparency is required
REGULATORS
• ►Guidance on the pre-contractual disclosure
• ►Structured licensing process for distribution channels
Action to further
analyze
and investigate
the consumer
trends
on UL products
will be taken,
mainly by
cross-sectoral
analysis under
the auspices of
the Joint
Committee of
the European
Supervisory
Authorities
(ESAs)
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Managing challenges
• Taxation for policyholders,
company taxes, investment
assets
• Regulatory controls on capital,
reserves, transparency
• Financial reporting under
IFRS, local GAAP
Market evolution – new horizons
Low
interest
rates
prevail
globally
affecting
returns
Guaranteed
returns
become
very
expensive
to offer
Consumers
get more
educated
every day
Other
industries
are
copying
UL
products
Managing
risk is our
business
Thank you
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