Milliman has released comprehensive new research analyzing the current and future state of the retirement income market in the Asia-Pacific region. The report is based on a survey of over 100 insurance companies and financial institutions across eight countries. The results, along with case-studies and in-depth analysis, provide insight into the economic and regulatory factors most affecting Asian retirement income markets, including consumer demand, product development, and opportunities for growth in the industry.
“Across Asia-Pacific, there is the potential for private market providers to complement and fill gaps that exist from government-sponsored retirement systems and employer-sponsored pension arrangements,” said Richard Holloway, managing director for Milliman’s South East Asia and India life consulting practice. “With this report we’re able to gain valuable insight into opportunities that may exist, on a country-by-country basis, and offer perspectives on ways to capitalize.”
“Technology advancements have now made it possible for financial institutions to provide consumers with tailored investment strategies and product solutions to achieve their goals in retirement. The development of robo-advice has begun to gain traction in the superannuation industry in Australia, and we expect the same to occur in Asia in the near future,” said Milliman Australia practice leader Wade Matterson.
Key findings from the report include:
• The vast majority of respondents feel their national retirement systems’ provisions are inadequate – even those traditionally considered to have more advanced systems such as Singapore and Australia.
• Regarding the most important features in a retirement income product, respondents feel consumers would value some type of guarantee, either income or capital protection, with simplicity being a consistent third across most countries.
• When it comes to financial advice, over 60% of participants felt financial advice was needed but 63% cited cost as the primary impediment for consumers.
Interested parties may obtain a copy of the Milliman study here.
Milliman today announced the availability of new research into the implications of the transition toward the Association of Southeast Asian Nations (ASEAN) Economic Community (AEC). With the AEC commencement quickly approaching at the end of this year, Milliman has examined the market characteristics and regulatory environments in each ASEAN country and has launched the Milliman ASEAN Liberalisation Index (MALI), a tool that characterises each member-state’s progress toward the more harmonized regime envisioned when AEC was originally conceived.
MALI is intended to provide a holistic and relative view of each ASEAN life insurance market, covering aspects such as regulatory openness, alignment to international standards, ease of doing business, and adequacy of policyholder protection. The higher the MALI score, the greater the state of liberalization. As may be expected, Singapore has the highest MALI score, confirming the view that it has the most advanced life insurance industry in ASEAN.
“Many insurance executives in the region view the move toward the AEC as advantageous for the industry in the long run, presenting more opportunities for cross-border sales and better exchange of talent,” said Richard Holloway, Milliman’s Managing Director of South East Asia and India Life. “However, each member country faces unique challenges. We are introducing MALI to help the life insurance industry across the region better understand commonalities and differences between the markets and develop appropriate strategies as we advance toward a more unified regime.”
“The requirements and deadlines of AEC as originally conceived may not be attainable short-term,” said Michael Daly, principal and consulting actuary in Milliman’s Hong Kong office. “We may see the emergence of a slimmed-down framework, leaving room for current differences while paving the way to greater integration in the long term. This report details those challenges and helps to identify a way forward.”
To see the full report, click here.
A low interest rate environment has stymied the development of Thailand’s life insurance sector. In this Asia Insurance Review article (subscription required), Milliman consultants Michael Daly and Clement Bonnet discuss some product solutions that may help insurers meet their consumer needs.
Here is an excerpt:
What options are available to life insurers in Thailand in the wake of such challenges?
One could adopt a relatively passive “wait and see, ride out the storm” strategy, avoiding any re-pricing of existing products or development of new innovative products, instead subsidising margin compression on new business from profits generated from older business backed by higher-yielding bonds, and hoping fixed interest yields will rise. This strategy obviously carries material risks.
Alternatively, one could be more proactive and re-price existing “guarantee heavy” products. This may boost profit margins, but carries the risk that such products offering less attractive policyholder returns may struggle to sell, especially if competitors do not re-price. It also increases disintermediation risk if fixed interest yields do rise in the future.
Or one could be bolder and make more radical changes to product strategy, seeking to take advantage of areas of untapped potential that have arguably been overshadowed by the plethora of “X pay Y” conventional endowments sold to date.
…Can unit linked business ever be successful in Thailand, as it has nearly everywhere else in Asia? If low interest rates are to become the norm, perhaps there will be greater urgency given to clear some of the stumbling blocks that have historically held back the growth of unit linked business.
In many Asian markets such as Hong Kong, Singapore and Malaysia, we have seen strong sales of participating products in recent times. The ability of these products to combine upside investment potential with a downside cushion of investment guarantees has proved appealing to customers wanting to avoid locking into non-participating products offering low returns or taking the investment risk associated with unit linked products.
Participating products have been sold in Thailand for many years, of course, but companies offering versions with greater discretionary benefits have historically struggled, and in many cases, participating products are almost indistinguishable from non-participating products.
The latest issue of Milliman’s Asia ERM Newsletter authored by Michael Daly, Richard Holloway, Sam Morgan, and Wing Wong, features an in-depth update on the China Risk Oriented Solvency System (C-ROSS). C-ROSS, China’s first-generation factor-based solvency regulation system, was put into place in 2007 after four years of preparation. It subsequently suffered from the same shortcomings as Europe’s Solvency I, a similar regime.
In 2012 plans and an implementation timeline were announced for a risk-based capital (RBC) solvency framework in China. Get the latest developments in the newsletter, which also includes a report on a recent RBC 2 industry round-table discussion held in Singapore, updates on other developments in China, Taiwan, and Indonesia, and more information of interest to enterprise risk management professionals.
This Milliman Asia ERM Newsletter highlights the latest developments in enterprise risk management (ERM) across the Asia Pacific region. ERM activity in the insurance sector is accelerating at a rapid pace around the region, especially since a number of regulators have introduced Own Risk and Solvency Assessments (ORSA). Even in countries where ORSA has not been introduced yet, there is an increased interest among risk managers who realize the value that ERM can add to their business through enhanced business resilience.
The newsletter features regulatory and market developments related to ERM from India, Singapore, and Thailand. An article by Neil Cantle on the complexity of risk within businesses is also included.
Thailand’s life insurance sector, which experienced market growth in 2012, continues to progress though a new risk-based capital (RBC) regime has come into effect. In this A.M. Best article (subscription required), Milliman’s Michael Daly discusses the increased capital regulations in Thailand.
Here is an excerpt:
Most big life insurers in Thailand have no problems meeting the increased capital requirements under the new RBC standard, said Michael Daly, Principal and Cconsulting Actuary at consultancy firm Milliman Ltd. Daly said a few smaller companies needed capital injections and there was one run-off company so far. Foreign and joint venture life companies had raised their capital base to a higher level to meet their home country’s compliance standard.
More than 95% of life insurance companies have a capital adequacy ratio above 300%, according to Vasumadi Vasinondha, assistant secretary general of the Office of Insurance Commission. As of the third quarter of 2012, life insurers on average had a CAR of 420%.
The risk-based capital regime has been implemented in phases, requiring a minimum capital adequacy ratio of 125% by Sept. 1, 2011 and 140% by Jan. 1, 2013. Total required capital is based on four components: market risk, credit risk, concentration risk and insurance risk.
Market and insurance risk charges account for the highest proportion of total capital required for life insurers, according to Daly. The low interest rate environment creates risk to asset-liability management for life insurers as the amount of liabilities may rise faster than the assets to match.
Credit and concentration risks are less significant for the life sector. Life insurers have been largely focused on building internal capabilities to comply with RBC standards. In the longer term, Daly said it will be interesting to see the extension of the RBC framework into other areas such as product pricing, business projections and embedded value reporting.