Sun Life expects record premiums for insurers
MANILA, Philippines - Industry leader Sun Life Philippines said it is optimistic the country’s life insurance industry would be able to surpass the P100-billion mark this year in total premium income.
Last year, the life insurers combined for a record premium income of P86.3 billion, with Sun Life rising as the country’s leading life insurer in terms of total premium income.
Sun Life president and chief executive officer Riza Mantaring said that as the life insurance industry expanded tremendously in the past two years, despite the low interest rate environment and global financial crisis.
“The industry is on track to pass the P100-billion mark fairly comfortably,” Mantaring said.
She added that with the improving economy and the positive outlook for the Philippines over the next few years, the Philippine insurance industry will take off.
The past few years likewise saw the rise of the variable unit linked (VUL) product as a share of total income as the public sought more investment and protection options, and the industry introducing more variable products.
In 2010, total premium income amounted to P70.7 billion, with the traditional products accounting for over two-thirds of the total.
Last year, total VULs amounted to P38.9 billion or nearly half of total premium income.
Mantaring explained that VUL product sales will continue to increase its share of the premium pie this year.
“Interest rates are expected to remain low, making traditional products less attractive. By their very nature, because of the inherent guarantees in traditional?products insurance companies are constrained to invest in low-risk but?relatively lower-yielding assets,” she said.
The chief executive explained that VUL products give the investment choice to the client.
It provides the client a wider array of investment instruments from which to choose depending on the client’s risk appetite, potentially allowing him to achieve better returns.
The low interest rates are also impacting on the growth of investments made by the insurers to expand its reserves for future claims. That situation has forced some players to re-price or increase prices of premiums, while others are retiring products that were based on a strong interest rate environment.
Mantaring explained that traditional products provide guarantees, which assume a certain rate of return on invested assets. For participating products, if the actual return is better, the client benefits in the form of dividends.
As interest rates decline, insurers would have seen the decline in dividend rates for?these policies.
As the actual returns fall close to those guarantees, insurers may be forced to set aside additional reserves to support old policies, and to re-price their products for new sales.
“It will also force insurers to be more creative in developing products, perhaps through riders or new features, to be able to offer continued value to the client,” the chief executive said.
Meanwhile, Mantaring expressed surprise with the way bancassurance has not been living up to expectations.
Bancassurance is the newest distribution channel of the life insurance industry, which utilizes the branch network of a partner bank. “Some years back, projections were that the bancassurance share of the market could be as much as 35 percent by 2011.”
However, it appears that bancassurance was actually only around 25 percent of total premiums and even less for new sales, measured by weighted first year premiums, in 2011.
Nevertheless, the Sun Life chief executive expects bancassurance to continue to take up an increasing share of the premium pie.
“Insurance penetration in the Philippines is very low at less than one percent of gross domestic product (GDP), and with such low penetration, distribution is key. The banks have the distribution power because of their geographical reach and spread, aided by existing client relationships,” she added.
Sun Life and the Rizal Commercial Banking Corp. (RCBC) had formed a joint venture bancassurance company known as Sunlife Grepalife Financial Inc. (Sunlife Grepa).
In fact, majority of the top 10 players have some form of bancassurance arrangements with some of the leading expanded commercial banks in the country.
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