New Milliman report maps Asia’s life insurance regulatory landscape

Milliman has released its latest report entitled “Regulatory diversity across Asia.” The report is a compilation and insightful analysis of current regulations applicable to life insurers across 14 Asian markets. It provides an analysis of the life insurance regulations in Brunei, China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand, and Vietnam.

The report includes an overview of the main regulations in these 14 markets, governing the following areas:

• Products / pricing
• Distribution
• Reserving
• Capital and solvency requirements
• Investments
• Policyholder protection
• Taxation
• Enterprise Risk Management (ERM)

Understanding the different stages of evolution of the regulatory regime across Asia will help life insurers and other organisations with an interest in the life insurance industry, get a better perspective and help them in strategic business planning, market entry, mergers and acquisitions (M&A) and cross-border activities in these markets.

A few observations from the report:

• The markets in Asia are still very much ‘rules-based’ (as opposed to ‘principle-based’). Detailed rules and regulations govern different aspects of the industry.
• Regulators are increasingly looking at areas such as customer protection and meeting policyholders’ reasonable expectations (PREs), although these areas are still at a nascent stage in many of the markets.
• There is also an increasing focus on strengthening the governance environment through the Appointed Actuary/Chief Actuary systems and the role of board committees.
• There is a clear trend towards adoption of risk-based capital (RBC) regimes and the enhancement of such frameworks, wherever already adopted.
• The regulations in several markets are changing rapidly.

To read the report, click here.

The release of PRA Policy Statement and Supervisory Statement on financial management and planning by insurers

In May, the Prudential Regulation Authority (PRA) issued two complementary publications in response to its November 2017 consultation paper CP23/17 “Financial management and planning by insurers”. The policy statement and supervisory statement issue further guidance and feedback based on industry responses to CP23/17 which set out the PRA’s expectations on effective financial management and planning by insurance firms and groups. This paper by Milliman’s Marie-Lise Tassoni and Fred Vosvenieks provides an updated summary of the supervisory statement.

EIOPA’s Insurance Stress Test Exercise 2018

In May, the European Insurance and Occupational Pensions Authority (EIOPA) launched its fourth stress test exercise for the 42 largest insurance groups in the European insurance sector. The 2018 EIOPA stress test exercise aims to assess the vulnerability of the EU insurance sector and comprises three specific hypothetical adverse scenarios which are informed by current market conditions, the risk climate, and their potential impact on the insurance sector.

This paper by Ian Humphries and Fred Vosvenieks looks into the three stress scenarios, the calculation methodology requirements, reporting timeframes, and disclosure requirements, whilst highlighting why non-participating insurers may find the exercise and the subsequent results of interest.

Annual Milliman survey reveals gradual shifting from full underwriting of UL/IUL products to simplified issue and accelerated underwriting approaches

Milliman today announced the results of its annual comprehensive study of universal life (UL) and indexed universal life (IUL) issues, which for the first time includes the reporting of sales by underwriting approach. The 11th annual Milliman study, “Universal Life and Indexed Universal Life Issues”, focuses on current topics relative to universal life with secondary guarantees (ULSG), cash accumulation UL, current assumption UL, and the corresponding indexed UL (IUL) versions.

This year’s report found that, between January 1, 2017 and September 30, 2017, the distribution of UL sales (on a premium basis) by underwriting approach was 29.8% simplified issue, 1.1% accelerated underwritten, and 69.2% fully underwritten. Comparing calendar year 2016 to the first three quarters of 2017, there was a 2.5% shift from fully underwritten sales to simplified issue and accelerated underwritten sales.

Similarly, between January 1, 2017 and September 30, 2017, the distribution of IUL sales by underwriting approach was 2.6% simplified issue, 16.8% accelerated underwritten, and 80.6% fully underwritten. Comparing sales in calendar year 2016 to the first three quarters of 2017, there was a 16.2% shift from fully underwritten sales to accelerated underwritten sales.

The life insurance industry has been moving away from full underwriting of life products to simplified approaches with fewer or different requirements and more timely responses, while still considering the implications of mortality cost. Nineteen of the 29 respondents reported using more than one underwriting approach. Of the 29, simplified issue underwriting is being used by nine participants, accelerated underwriting by 12 participants, and full underwriting by 28 participants. Eleven additional participants reported they will or may implement accelerated underwriting programs in the future.

“Carriers are focusing on improving the life underwriting process with the use of new technology, such as predictive analytics, the reduction of underwriting costs, and the shortening of the approval process. These improvements are possible when using an accelerated underwriting approach, which likely explains some of the shift we’re seeing,” says Sue Saip, consultant in Milliman’s Chicago office.

In addition to underwriting information, the survey also indicates that sales of chronic illness riders and long-term care riders on UL/IUL policies continue to grow. During the first three quarters of 2017, sales of chronic illness riders as a percent of total sales were 8.7% for UL products and 38.5% for IUL products. During the same period, sales of policies with long-term care (LTC) riders as a percent of total sales (by premium) were 33.2% for UL products and 10.9% for IUL products. Within 24 months, 83% of survey participants possibly will market either an LTC or chronic illness rider.

The 404 page “Universal Life and Indexed Universal Life Issues – Detailed Report” also includes detailed information on product and actuarial issues, such as sales, profit measures, target surplus, reserves, risk management, underwriting, product design, compensation, pricing, and illustrations.

The report is available for purchase here or by calling Gina Ritchie at (312) 499-5605.

How will U.S. tax reform affect captive insurers?

Tax reform in the United States is influencing the economic benefits previously enjoyed by some captive insurance owners. Two reform items specifically affect captives: the new marginal rate, which was decreased from 35% to 21%, and the change in the benchmark interest rates to be used for discounting loss reserves. In this article, Milliman’s Joel Chansky and Mike Meehan provide analyses demonstrating the effects that these new tax items have on both large and small captive insurers.

FASB approves targeted improvements

The Financial Accounting Standards Board (FASB) has approved the issuance of a final Accounting Standards Update (ASU) of targeted changes to the accounting for long duration insurance contracts. The targeted improvements will be effective in 2021 with early adoption permitted. This paper by Milliman consultant William Hines outlines the decisions and discussions at the June 6, 2018, FASB meeting.