Electronic payments gain ground in US health care
market…
Zurich enters Middle East takaful
market…
Friends Provident dips a toe in
Malaysia…
Big blow to insurers looms in
Argentina…
UK government shuns pension
body’s plea…

News Digest

 

HEALTH INSURANCE

Electronic payments gain ground in US health care
market

Electronic payments in the US health industry are experiencing
robust growth, indicate volumes being processed by OptumHealth, a
unit of the US’ largest health insurer UnitedHealth.

OptumHealth reports that in October this year the number of
electronic payments and statements processed reached 11 million, up
26 percent compared with October 2007. In addition, the number of
health care service providers using OptumHealth’s electronic
payment service increased by 30 percent to 366,000.

In total OptumHealth anticipates processing over 130 million
claims and payments in 2008, an impressive number but still a small
fraction of the health industry’s total.

According to OptumHealth, of the total of about 2.7 billion
medical claims processed annually by US health insurers and other
third-party payers, only some 20 percent (about 540 million) are
paid with remittance advices transmitted electronically.

 

LIFE SETTLEMENTS

Towards enhanced policy valuation

Two US companies, software vendor Vigilan and traded life
insurance policy investment company Life Settlement Financial
(LSF), have joined forces to develop improved models to increase
the accuracy of valuations on life insurance policies. LSF acquires
policies by partnering with state health care associations to serve
their members’ independent and assisted living communities.

Central to the partnership is Vigilan’s Administrator, a
management software solution used by some 500 providers of
independent living, assisted living and dementia care, as Vigilan’s
chief operating officer, Doug Fullaway, explained: “By utilising
resident data in Administrator, Life Settlement Financial can
improve their models with a new and ever-growing set of data.”

“By tapping into a resident’s care plan and assessment data
inside Vigilan, we can better assist clients with an accurate value
related to their life insurance policy,” said LSF’s president Peter
Mazonas.

According to Mazonas, nearly 90 percent of all universal life
policies lapse and never pay a death benefit.

Established in 2006, LSF purchases life insurance policies for
its own investment portfolio.

 

ANNUITIES

Confusion reigns among UK retirees

When it comes to annuities, confusion reigns supreme among UK
consumers, warns Just Retirement.

The retirement solutions specialist based its view on a survey
conducted of people at pre-retirees and retirees aged between 55
and 70.

Among the startling findings was that 28 percent of respondents
had never heard of the term annuity, while 59 percent of those who
said they understand what an annuity is were incorrect when asked
to select a statement that defined an annuity.

Also of concern was that 79 percent of respondents at retirement
age had never heard of the Open Market Option (OMO) which does not
restrict them to buying an annuity from their pension provider.

“With knowledge levels this low it is unsurprising that so many
people end up purchasing an annuity through their provider without
being aware they can go elsewhere for a better deal,” said Just
Retirement’s Marketing and Distribution Director David Cooper.

Just Retirement estimates that by not shopping around for the
best annuity, annuitants missed out on a total of £500 million
($765 million) in extra income in 2007.

 

TECHNOLOGY

UK insurers step up online security

In a world where internet data theft and fraud is rising at an
alarming pace, online security has become vital. Recognising this,
UK life insurance industry technology standards body Origo has
formed an alliance with Japanese digital security vendor Trend
Micro to strengthen e-mail security.

A key focus of the alliance is to meet regulatory requirements
that communication containing personal information must be
protected, requirements that have tended to result in the use of
fax or post, neither of which are cost effective or totally
secure.

Trend Micro’s solution, which is based on advanced encryption
technology, has since early-2008 been the subject of a pilot
programme involving Norwich Union and Skandia and their networks of
independent financial advisors. Origo noted that following the
success of the pilot programme, it is proceeding with its plans to
launch a full-scale industry solution.

Based in Edinburgh, Origo is a non-profit body sponsored by 15
life insurers.

 

PENSIONS

UK government shuns pension body’s plea

Britain’s Chancellor of the Exchequer, Alistair Darling, missed
a golden opportunity in his pre-Budget Report to assist the
country’s ailing defined benefit pension schemes believes Chris
Hitchen, chairman of the UK’s National Association of Pension
Funds. Darling’s error, according to Hitchen, was a focus on
short-dated bonds to fund the budget deficit.

Prior to delivery of the report on 25 November, Hitchen had
called on Darling to increase the amount of long-dated fixed and
consumer inflation index-linked government debt. This, stressed
Hitchen in a letter to Darling on 14 November, would hold a number
of benefits for pension schemes and insurers including “greater
availability of a strategic asset and reduced pressure on their
balance sheets.”

Because of the inverse yield curve (yields on long-dated bonds
lower than on shorter duration bonds) the government would have
also enjoyed a lower cost of funding, noted Hitchen.

Far from heeding Hitchen’s advice, Darling announced that of a
planned £66.4 billion ($102 billion) increase in planned government
bond sales in the year ending 5 April 2009, only £6.3 billion will
be in long-dated conventional bonds of 15 and over years maturity
and £2 billion in inflation index-linked bonds.

 

COMPANIES

Equitable Life pulls down ‘for sale’ sign

In yet another twist to a long-running saga, troubled UK mutual
insurer Equitable Life has announced that it has “put its sale
process on hold.” This decision follows Equitable’s announcement in
December 2007 that it was seeking a suitable offer to be
acquired.

Up for sale was, essentially, Equitable’s £6 billion ($9
billion) with-profits fund, the insurer having already transferred
£4.6 billion non-profit pension annuities to Canada Life and £1.7
billion of with-profits annuities to Prudential.

In a statement, Equitable said that given the current financial
and economic climate the board decided that although various
proposals were received none would certainly provide improved
prospects for policyholders.

“We will now focus on a stable and secure run-off of the
Society,” said Equitable’s chairman, Vanni Treves.

 

INDUSTRY TRENDS

Financial professional bodies join forces

A merger of a more unusual nature is due to occur in early-2009:
that between the UK-based Chartered Insurance Institute Group (CII)
and the Australian and New Zealand Institute of Insurance and
Finance (ANZIIF). The merged entity to be known as the Chartered
Institute of Financial Services (CIFS) will have over 105,000
members across 170 countries, making it the world’s largest
financial services professional body.

“The recent turbulence in the world economy demonstrates the
global nature,” said the CII’s CEO Sandy Scott. “More and more
regulation will not tackle the fundamental need for real
professionalism. This need will be met by the creation of
CIFS.”

The CII, which traces its beginnings back to the world’s first
insurance institute founded in the UK in 1873, has some 90,000
members. The ANZIF is the largest body of its kind in the
Asia-Pacific region. Members of the CII and ANZIF will vote on the
proposed merger on 28 January 2009.

 

COMPANIES

Friends Provident dips a toe in Malaysia

UK life insurer Friends Provident has taken its first tentative
step into the Malaysian market with the purchase of a 30 percent
stake in composite insurer AmAssurance’s life unit, AmLife
Insurance (AmLife), for RM170 million ($46 million). The vendor,
Malaysian banking group AMMB Holdings – better known as AmBank
Group – has as a major shareholder Australian and New Zealand
Banking Group which acquired a 25 percent stake in 2007.

Friends Provident’s CEO Trevor Matthews commented that while the
investment in Malaysia was modest it represented an “important
strategic development” and highlighted the insurer’s commitment to
international growth in general and to Asia in particular.

A small player in Malaysia’s insurance market, AmAssurance’s new
life business premium income totalled RM93 million in its financial
year to 31 March 2008, an increase of 18 percent compared with the
previous financial year. In 2007, Malaysia’s life insurance
industry recorded total premium income of RM21.1 billion according
to Swiss Re.

Following conclusion of the deal, AmAssurance’s general
insurance operations will be transferred to a separate legal
entity, in which Insurance Australia Group will hold a stake.

 

PENSIONS

Big blow to insurers looms in Argentina

Argentina’s government is proposing a radical reform of the
country’s pensions system which, if approved by the Argentine
Congress, will have a negative impact on insurers, warns rating
agency Moody’s.

Under the proposal, the private defined contribution retirement
savings system introduced as part of the national pension system in
1994 and funded by worker contributions would be terminated and
replaced by a public pay-as-you-go pension system administered by
the government. Private system pension funds termed AFJPs have
total assets of $30 billion, according to Moody’s.

If the proposal is approved, insurers that have issued lifetime
annuities to participants in AFJPs upon attaining retirement age
would continue to administer their in force business and reserves
on a run-off basis, but would no longer write new business.

Termination of the private pension system would also have a
potentially destabilising impact on the insurance industry as
insurers impacted by the change scrabbled to replace lost business,
noted Moody’s.

In addition, the private system is a primary source of growth
for Argentina’s capital markets and its termination would
contribute to already declining growth of the Argentine economy,
and in turn would also be likely to cause a decline in the level of
insurance activity in the country.

 

COMPANIES

Guardian Life bets on US real estate

Property still offers merit believes US insurer Guardian Life
Insurance Company of America (Guardian) which has just invested $30
million in convertible subordinated debt of Kennedy Wilson (KW), an
international property marketing and investment services company
based in California. When fully converted, Guardian will have a 10
percent equity stake in KW.

Taking its involvement with KW further, Guardian has invested
$100 million in a $1.25 billion fund managed by KW which focuses on
acquiring what Guardian terms financially distressed and under
managed real estate assets. In addition, Guardian has acquired a
residential complex from KW for $24 million, bringing its total
outlay in the three deals to $154 million.

Founded in 1977 KW has offices throughout the US and in Japan
where it has been active since 1995. Notably, news of Guardian’s
involvement did not prevent KW’s share price slumping by 40 percent
during November 2008.

 

ASSET MANAGEMENT

Standard Life Investments turns 10

On 16 November 1998 Standard Life Investments (SLI) opened its
doors to business as what its CEO Keith Skeoch terms a company
“separate and distinctive” from its parent, UK insurer Standard
Life.

Ten years on and in a very changed world, SLI has grown total
assets under management (AUM) from £60 billion ($92 billion) to
£123.6 billion. Of the latter total, equity AUM stood at £52.7
billion, up 55 percent over the 10 years, a notable achievement
given that the UK’s benchmark FTSE 100 equity market index is 20
percent lower than it was in November 1998. Fixed interest AUM
totalled £43 billion and property AUM £12 billion in November
2008.

However, in an intensely competitive market, growth in AUM has
been hard-won. Indicatively, SLI crossed the £100 billion AUM mark
in July 2005 when total AUM reached £105.7 billion. By the end of
December 2006 AUM had reached £132.2 billion and a year later
£143.4 billion.

SLI has offices and representative offices in 10 countries and
clients in 31 countries.

 

COMPANIES

Zurich enters Middle East takaful market

Swiss insurer Zurich Financial Services (Zurich) is set to enter
the Islamic Sharia law-compliant insurance market with the
establishment of a joint venture (JV) in the United Arab Emirates
(UAE). Partnering with Zurich is UAE-based Abu Dhabi National
Takaful Company (ADNT) which will have a 49 percent stake in the
new company, Zurich Takaful Company Limited, which will focus on
family takaful (life insurance) business.

Commenting, Mario Greco, CEO of Zurich’s Global Life business
segment, said: “The launch of Zurich Takaful is an exciting growth
opportunity and in line with Global Life’s strategy, while it also
reinforces the Group’s commitment to the Middle East and North
Africa.”

The new insurer will be based in the Dubai International
Financial Centre where Zurich intends to create a regional product
development and operational hub.

ADNT was established in November 2003 by Abu Dhabi Islamic Bank,
Abu Dhabi Investment Company and a number of private entities
companies and individuals. In the third quarter of 2008 ADNT
reported gross written premium income of AED148.3 million ($40
million), up 40 percent compared with the third quarter of
2007.