Challenges Albeit Low Interest Rate

The possible effects of changes in life insurers’ interest rate assumptions is one of the question marks looming over the industry. Established & major players have already slashed the interest rate assumptions they use to run their businesses.

Interest rate assumptions matter to life insurers partly because the reserves they hold, and invest, to support long-term life, disability insurance, long-term care insurance (LTCI) and annuity obligations are enormous relative to the size of their net income.

Even small changes in rate assumptions may require them to top off reserves. Shifts of cash into reserves that are small relative to the size of the reserves may look huge relative to the size of an insurer’s typical earnings. The lower the interest rate assumptions, the higher prices for new life, annuity, disability and LTCI products are likely to be, and the skimpier the benefits guarantees are likely to be.

Bondholders’ Pay Cut - big life insurers look as if they’re getting a manageable number of COVID-19-related life insurance claims, with claim costs well below stress-test levels. For now, at least, life insurers’ portfolios of corporate bonds, mortgages and mortgage-backed securities look fine.

However life insurers hold trillions of dollars in high-quality corporate bonds, Moody’s Seasoned AAA Corporate Bond Yield chart shows that the yield available from the very highest rated corporate bonds has dropped to 2.3%. That’s down from 3% at the started of the year, and down from a level over 3.6% for most of the past five years.

S&P’s own S&P 500 10+ Year Investment Grade Corporate Bond Index shows that the average yield to maturity for the basket of high-quality corporate bonds it tracks stood at 2.93% Wednesday. That was down from about 3.6% a year ago.

Bond yields represent just one component of what life insurers can earn on their investment portfolios, but a big component. For a life insurer, the situation is comparable to what might happen to an agent who collects commissions and asset-based fees, and who sees the asset-based fee revenue cut about 20%.

Big life insurers’ long-term rate assumptions for 10-year U.S. Treasuries range from 2.25% to 5%, with many with assumptions clustering between 3% and 4%. The actual 10-year Treasury rate is now 0.649%.

The Stock Picker Perspective - Several securities analysts are painting a similar picture. In a commentary - they describe the corner of the life industry they follow as a “paragon of resilience.’ Results held up to challenging conditions significantly better than expected, both from an earnings and capital perspective. The albatross around the neck of the industry remains persistently low interest rates.”

Although low rates are a headache for life insurers, low-rate phobia has already hurt life insurers’ stock prices. Because life insurers’ stock prices already reflect worries about low rates, some life insurance company stocks have the potential to do much better than expected, especially if rates do go up more than some life insurers and life industry watchers fear, the analysts write.

FWD - "Kan" Series With Lazada

FWD Life Insurance Corp has launched its own retail space on Lazada, the region’s leading e-commerce platform, to make its products readily available to consumers. Through the FWD Flagship Store, the insurer said it will make its surety products, such as KanMend, KanLive, and KanGuard, more accessible to customers.

In light of the evolving Covid-19 situation where everyone is highly encouraged to stay at home, FWD wants to make our KanDüü insurance plans easily accessible to more Filipinos. Offering these plans on Lazada supports our goal of bringing financial protection to customers, at their utmost convenience. When customers shop online at the comfort of their homes, we also hope to make them feel more secure amidst these uncertain times. That’s why we are offering these affordable plans with superior coverage, and exciting rewards as well—all in support of FWD’s vision of changing the way people feel about insurance.

KanDüü caters to clients between the ages of 18 and 50 years old. For only P1,799 a year, customers up to age 55 are entitled to life, critical illness, or accident and terrorism insurance coverage with added compensation. Each product also has its own features that fit people’s unique lifestyles and changing needs.

KanMend provides a benefit of P100,000 in case the insured is diagnosed with any of the 42 covered critical illnesses. Policyholders can also claim a reward—a six-month access to KonsultaMD, a health hotline service providing 24/7 unlimited telemedicine access to licensed Filipino doctors providing medical advice.

KanLive is a life insurance policy that entitles the beneficiaries to an amount of P200,000 in case of the policy owner’s death. This plan has a reward of one year of unlimited medical consultation, courtesy of Aventus Medical Inc., a healthcare service provider with 12 branches located in Metro Manila, Cebu, Laguna, and Pampanga.

KanGuard protects clients in case of accidental death or terrorist attack anywhere in the world. It extends a cash benefit of P500,000 as financial support for the beneficiaries in case of the policyholder’s death or total and permanent disability. It also comes with a one-year subscription to Assist America Global Emergency Services, a provider of emergency medical services for travelers worldwide.

AXA General Insurance Unloading Korea Operation

AXA is keen to sell a 100% stake in its South Korean operation, AXA General Insurance Co. The 100% stake is estimated to be worth between 160 billion won ($135.3 million) and 240 billion won ($203 million). The net asset value of AXA General is 235.1 billion won. Non-life insurance transactions have recently been valued at a price-to-book ratio of 0.7 times. Earlier this year, Hana Financial Group’s 70% stake purchase in The-K Non-Life Insurance for 77 billion won was also based on a P/B ratio of 0.7.

AXA General Insurance was Korea’s first “direct auto insurance” firm, whereby a company and a contractor could sign up for insurance directly, without an agency or a recruiter. M&A market sources say that financial holding companies are likely to be more interested in the deal than private equity funds (PEFs) since the auto insurance sector is strictly regulated by financial regulators — a hurdle that may put off potential buyers.

The asset might not be so attractive to PEFs that need to retrieve funds after a certain period. Local financial holding companies that need non-life insurance licenses are likely to show greater interest.

Currently, Shinhan Financial Group and Woori Financial Group are the two financial holding companies that do not have non-life insurance portfolios. Shinhan Financial, Korea’s largest bank holding company, has acquired Orange Life Insurance, the former Korean operation of ING Life Insurance, but it does not hold a non-life insurance company.

As for Woori Financial, it invested 20 billion won into a project fund managed by JC Partners, a PEF that owns MG non-life insurance company, but the financial group does not directly operate a non-life insurance company.

Korea Direct, an independent local insurance company, entered Korea’s online insurance market in 2000. The name changed to Kyobo Auto Insurance in 2001 when it was acquired by Kyobo Life Insurance, one of the largest life insurers in Korea. In 2007, it became Kyobo AXA Auto Insurance when AXA Group acquired a 74.7% stake in Kyobo Life.

In 2009, it became AXA General Insurance when AXA Group acquired the remaining shares.

Aside from auto insurance, the Korea-based AXA also offers general and long-term insurance products, including fire insurance, accident insurance, and health insurance.

AXA General secured 903,759 fresh contracts during the first quarter of this year. The insurer has accumulated 2,788,239 contracts to date. In 2019, AXA General posted 929.4 billion won in operating profits.

Bharti AXA Merged ICICI Lombard General Insurance

ICICI Lombard General Insurance has said it has entered into a definitive agreement to acquire Bharti Enterprises-promoted Bharti AXA General Insurance in all stock transaction. Bharti Enterprises currently owns 51 per cent stake in Bharti AXA General Insurance, while French insurer AXA has 49 per cent. 

The board of ICICI Lombard General Insurance "at its meeting held on August 21, 2020, considered and approved a 'scheme of arrangement' amongst Bharti AXA General Insurance (demerged company) and former company and their respective shareholders and creditors", the ICICI Bank promoted non-life insurer said in a late night filing on Friday.

Post demerger, Bharti AXA General Insurance will cease to be a going concern and both Bharti Enterprises and AXA will exit non-life business.

CIMB & Sompo Online All-Risk Protection

CIMB Bank Bhd has collaborated with Berjaya Sompo Insurance Bhd to introduce an online all-risk protection insurance plan called Secure Home.

In a joint statement, the bank and insurer said the new plan covers both household goods and personal belongings in your home against loss and damage on a first loss basis. The plan, alongside selected SOMPO Motor and other general insurance products distributed by CIMB, can be purchased through the bank’s website.

Risks covered under Secure Home include fire or lightning, floods, thefts and accidents, with an insured sum of up to RM60,000, depending on the plan chosen. It even covers theft by visitors.

Waterdrop Raised US230 Million

Chinese online insurance technology platform Waterdrop Inc has raised US$230 million in a new funding round led by reinsurer Swiss Re and Chinese internet giant Tencent Holdings.  Waterdrop's existing investors, includes IDG Capital and Wisdom Choice Global Fund.

Two sources with knowledge of the fundraising told Reuters that Waterdrop was valued at nearly US$2 billion in the funding round. One of them said that Swiss Re itself had invested US$100 million.

Founded in 2016, Beijing-headquartered Waterdrop distributes insurance policies online via Waterdrop Insurance Mall, provides illness crowd-funding via its platform Waterdrop Crowdfunding, and operates mutual funds.

The insurance business, with 120 million unique policy holders, reported a total written premium of US$865 million in the first half of this year, the company said in its statement. It expects to double its total written premium in 2020.

With the new capital, Waterdrop said it will tap into artificial intelligence and big data for its products and services, and accelerate its initiatives in medical and healthcare services. Waterdrop, founded by Shen Peng, a former executive at Chinese food delivery and local services giant Meituan Dianping , also counts his ex-employer as an investor.

Why & When You Need Life Insurance

Here are some life situations wherein you are going to need a life insurance policy.

When You are diagnosed with a life-threatening ailment - Life insurance policies are designed to help you overcome life’s uncertainties. Should you succumb to the illness - hospitalizations and medical bills can be expensive and quickly deplete your life’s savings if you don’t have a robust life insurance policy to help you. While it may seem like a financial burden right now, but this policy will play a massive role in keeping you afloat when the illness hits you too. Supplemented by critical illness riders, life insurance policies become your financial partner even in the time of disease. As soon as you are diagnosed with the condition mentioned in your policy document, the critical illness rider is activated and you get the sum assured that helps you pay for your treatment and related expenses without digging into your savings.

When you are the sole breadwinner - When you are the only earning member in your family, then you must consider buying a life insurance policy to secure the financial future of your loved ones. When you invest in a plan, it helps to provide financial relief to those whom you left behind. It will help them continue living their best life and fulfill all the financial obligations. Look at it from your family’s point of view, and you’ll see why you need one. Life insurance is a tool that protects your spouse and children from the devastating losses that can result from your premature passing.

When you have more dependents in your family - Your life insurance policy will deliver the sum assured at the exact time when it is needed the most. Upon your death, your family will get the policy benefit that is tax-free and will help them get on with their lives. When you have dependents in your family that are your financial responsibility, then you need to ensure that the sum assured is enough to pay for everyone’s needs. Ideally, the coverage amount should be at least 15-20 times your annual income to pay for your family’s future financial obligations and also account for inflation.

When you have liabilities and loans - Do you want to leave behind mounds of debt upon your passing? If you don’t want your family to deal with financial liabilities during a crisis, then you must invest in a life insurance policy. Any outstanding debt such as home loan, auto loan, or loan on credit cards would be taken care of by your policy so that your family doesn’t have to deal with your debts.

When you have a risky occupation - Generally speaking, when an occupation is regarded as risky with an elevated risk of demise, then it is all the more critical for you to invest in a life insurance policy. This is all the more necessary if your family depends on your income.
On-the-road sales executives, truck drivers, coal mines, fishing and logging, and ship, are considered as professions with occupational hazards. So consider your profession and figure where you fall on the risk scale. Use this information to find suitable life insurance policies that offer coverage to people in these trades. Since you are already working in a risky occupation, having a plan in your portfolio will give you and your family the peace of mind that they will be able to move on in case something happens to you.