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May 1, 2008

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Long-term care cover a must-have in the US... Malaysians remain investment orientated... Asian insurers on IT spending spree...

By Verdict Staff

Long-term care cover a must-have in the US…Malaysians remain investment orientated…Asian insurers on IT spending spree…Aegon bolsters position in Spain…More consolidation in Australia…

INDUSTRY TRENDS

US life insurance sales growth stalls

US life insurers made heavy weather in the individual life market in the first half of 2008, with 55 percent of the 78 companies participating in a survey conducted by financial services association LIMRA International reporting declines in annualised premium income. Three companies reporting declines ranked among the top-10 insurers.

Overall industry sales were flat compared with the first half of 2007, with the only bright spot being universal life (UL) which recorded an 8 percent increase in sales. This was thanks to strong UL sales in the first quarter of 2008 with second quarter sales flat, noted LIMRA product research analyst Ashley Durham.

Variable universal life (VUL) products recorded the biggest sales decline, falling 8 percent in the second quarter and 7 percent for the first six months overall.

VUL products featuring guarantees did buck the trend, rising 2 percent in the first half of 2008. These products, however, accounted for only 13 percent of total VUL annualised premiums.

According to industry body the Insurance Information Institute individual life insurance gross premiums written in 2007 totalled $142.87 billion, excluding reinsurance, representing 21.4 percent of total direct premiums written by the industry.

LONG-TERM CARE INSURANCE

Long-term care cover a must-have in the US

US consumers who doubt the need for long-term care (LTC) insurance may well be swayed to alter their view by findings of a study conducted by US life insurer Prudential Financial.

Not only are LTC costs rising – by up to 13 percent since 2006 – but are already at levels that could prove financially disastrous even for those who have retired with a sizable nest egg.

“Many Americans mistakenly believe Medicare or private health insurance will pay for their long-term care needs,” stressed Andy Mako, senior vice-president of Prudential’s long-term care insurance unit.

The reality is long-term care risk is substantial and, under current Medicare and Medicaid policy, much of it is the uninsured private responsibility of individuals who pay for care and of families who care for their relatives.”

Underscoring his point, Prudential’s study reveals, for example, that the average yearly cost for an assisted-living facility is now $38,892 while the average annual cost of a private room in a nursing home is $79,205.

The most expensive state is Alaska with annual costs for these services averaging $82,956 and $183,595, respectively.

COMPANIES

Genworth talks up combined IFA unit

In a move aimed at strengthening its position in the US, separately-managed accounts market Genworth Financial has merged its two wealth management units, Genworth Financial Asset Management and AssetMark Investment Services, under a new brand, Genworth Financial Wealth Management (GFWM).

The US life insurer and financial services provider acquired AssetMark in June 2006 in a deal worth up to $340 million based on performance over five years.

According to the new unit’s co-chairman Gurinder Ahluwalia, GFWM provides 500 independent financial advisors with one of the most comprehensive fee-based investment management platforms in the industry, in addition to client relationship management tools and practice management programmes.

GFWM boasts some 4,500 independent financial advisers (IFA) and $18 billion in assets under management (AUM). This compares with a combined total of 4,000 IFAs and AUM of $12 billion at the time of AssetMark’s acquisition.

EQUITY RELEASE

Prudential sees rising equity release demand despite house price falls

Despite falling residential property values in the UK, Prudential remains upbeat on the equity release market’s potential.

Backing its optimism, the UK insurer achieved total new business equity release mortgage advances in £117 million ($209 million) in the first half of 2008, an increase of 75 percent compared with the first half of 12007 and the highest half year sales since it entered the market in 2005.

Based on data for property Prudential reported that despite a total fall of £7.7 billion in the value of property equity owned by people over 65 years old in England and Wales between February 2008 and May 2008 the value of equity in their properties still totalled a massive £726.43 billion at the end of May 2008.

The data covers a total of 3.8 million households.

“In the vast majority of cases retired homeowners have built up a significant amount of equity in their homes over a number of years,” said Prudential director of lifetime mortgages Keith Haggart.

“This, together with the rising cost of living means that many more people are now looking to release equity from their homes to maintain or improve their standard of living in retirement.” 

BANCASSURANCE

Barclays and Norwich Union strengthen ties

Barclays Bank and the UK’s largest life insurer, Norwich Union (NU), have teamed up to market life insurance products to what the bank termed “mass market customers” via the internet. Marketing of the products branded as Simplified Life began in August.

Simplified Life incorporates level and decreasing term insurance options sold on a non-advised basis via Barclay’s UK website which offers customers are offered a quote option and a full application facility. Cover offered is up to a maximum of £500,000 with monthly premiums from as low as £5 ($9).

“The Norwich Union partnership enables us to expand our protection offering to include life insurance, a product which is essential to many customers,” said Gary Duggan, managing director for consumer lending and insurance at Barclays.

As a launch incentive Barclays is offering a 15 percent premium discount and shopping vouchers worth £15 to be used at retailer Marks and Spencer. People obtaining a quote during September also stand to win £24,000.

For NU, a unit of UK insurer Aviva, the life insurance alliance strengthens ties with Barclays which since 2005 have included the exclusive supply of motor, travel and home insurance products to the bank. 

BANCASSURANCE

Aegon bolsters position in Spain

Further strengthening its position in Spain, Netherlands life insurer Aegon has entered into an exclusive life insurance, pension and health agreement with Spanish savings bank Caixa Terrassa.

As part of the agreement Aegon will acquire a 50 percent stake in the bank’s insurance unit Caixa Terrassa Vida (CTV) for €90 million ($132 million).

“We are very pleased with this partnership, which is key in securing access to the Catalonian market, one of the wealthiest regions of Spain,” said Aegon CEO Alex Wynaendts.

Caixa Terrassa has about 300 branches and 500,000 customers in Catalonia, a region with a population of 7.2 million.

According to Aegon, the alliance with Caixa Terrassa will boost it into the position of the sixth biggest player in Spain’s life insurance market which it first entered in 1980.

In 2007 CTV achieved gross written premium income of €215 million.

With the formation of the alliance with Caixa Terrassa, Aegon now has alliances with Spain’s top-five banks. The other four are Caja de Ahorros del Mediterráneo, Caja Navarra, Caja de Badajoz and Caja Cantabria.

Bancassurance is the primary distribution channel in Spain, accounting for some 70 percent of life insurance policy sales. In total Aegon now distributes via 2,200 bank branches nationwide. 

BANCASSURANCE

Groupama and Ergo bid for Greek insurer

French insurer Groupama and German reinsurer Munich Re’s primary insurance unit Ergo have emerged as the two bidders for an undisclosed majority stake in Agricultural Bank of Greece’s (ABG) insurance unit ATE Insurance.

Both bidders have submitted undisclosed binding offers that incorporate the establishment of a bancassurance alliance with ABG.

A bancassurance alliance with ABG would provide access to its 470 branches which, according to ABG, represents the second largest bank branch network in Greece.

Clearly both Groupama and Ergo see potential in the heavily underinsured Greek market. According to reinsurer Swiss Re life and general insurance premium income in the Greek market in 2007 totalled €2.26 billion and €2.13 billion.

Life insurance premium income represented a mere 1 percent of Greece’s GDP while life insurance premium income averaged only €277.20 per capita.

AGE reported that, as at 30 June, ATE Insurance had total assets of €696 million ($1.02 billion) and had produced a net profit of €500,000 in the first half of 2008. 

INDUSTRY TRENDS

Malaysians remain investment orientated

Despite investment market volatility, many Malaysian consumers are receptive towards investment products, reveals a study conducted by CIMB Aviva Malaysia, a joint venture between UK insurer Aviva and Malaysian financial services company CIMB Group.

If in a surplus cash position, 27 percent of respondents would leave the cash in the bank and 22 percent would invest in an insurance product or a mutual fund. However, if certain prerequisites were met a full 67.9 percent of respondents said they would invest in an investment-linked insurance product.

The prerequisites are: guaranteed capital protection, geographical investment diversification and insurance protection.

From a diversification perspective, Asia excluding Australia was the preferred investment location of 74 percent of respondents with markets such as China, India, Philippines, Indonesia, Thailand and Malaysia of particular attraction.

Australia was chosen by 10.7 percent of respondents and Australia North America by a mere 5.4 percent.

TECHNOLOGY

Asian insurers on IT spending spree

In a drive to improve their competitiveness, insurers in the Asia-Pacific region are relying increasingly on information technology (IT), according to Springboard Research.

Excluding Japan, the India-based firm predicts that IT spending by the region’s insurers will rise from $3.2 billion in 2007 to $5 billion in 2010, a CAGR of 11.5 percent.

“After having relied on traditional ways of doing business for so long, insurance companies across the region are now embracing IT in a big way and are looking for new ways to reach out to their customers,” explained Springboard senior analyst Nilotpal Chakravarti.

“This focus on new market opportunities is one of the key drivers for IT spending by the Asia Pacific insurance industry,” he added.

Though Australian insurers are currently the biggest spenders on IT in the region, accounting for about 30 percent of the total excluding Japan, Springboard predicts that the strongest growth in IT spending will be seen in China and India.

In total insurers in Australia, China, Korea, India and Taiwan account for 86 percent of IT spending in the region, excluding Japan.

HEALTH INSURANCE

More consolidation in Australia

Consolidation in Australia’s health insurance industry is set to take another decisive step forward following Manchester Unity Australia’s (MUA) board’s approval of an acquisition offer from fellow not-for-profit health insurer HCF Australia (HCF).

The deal is subject to approval by MUA members who will share in the proceeds of HCF’s A$256 million ($210million) offer.

MUA, Australia’s ninth-largest health insurer, would add 90,000 members, swelling HCF’s membership to 545,000 and entrench its position as the country’s third-largest health insurer.

Highlighting consolidation in the Australian industry, MUA CEO John Brogden said: “Health insurance is a rapidly consolidating market and a company of Manchester Unity’s size would find it increasingly challenging to continue offering the most competitive products and services.”

If successful, the merger would be the Australian industry’s third this year.

In the largest deal, UK health insurer BUPA’s Australian unit acquired health insurer MBF for A$2.41 billion, a move that boosted policyholder numbers to almost 3 million giving it a market share of about 30 percent and creating the industry’s second largest player

Shortly after the BUPA deal, Australia’s largest health insurer, government-owned Medibank Private, announced it intended acquiring Australia Health Management, a deal that would add 250,000 members to its existing membership of 3 million.

DEVELOPING MARKETS

Solidarity Group on expansion trail

The Saudi Arabian Monetary Agency has granted Solidarity Group, the takaful insurance unit of Bahrain-based Ithmaar Bank, preliminary approval to establish an insurance company in Saudi Arabia.

The new insurer is to be named Solidarity Saudi Takaful Company (STC) and will initially offer Islamic law-complaint family takaful (life insurance) and general takaful products.

STC will have a total capital of SAR555 million ($148 million). Solidarity will contribute 60 percent of the capital with the balance to be raised in an initial public offer prior to STC’s listing on the Saudi Stock Exchange in the first half 2009.

Further extending its reach Solidarity has also announced the establishment of a unit in Egypt, Solidarity Family Takaful Egypt with an initial capital of EGP60 million ($11 million). Solidarity also has plans to establish units in United Arab Emirates, Pakistan and Indonesia.

Solidarity also owns Luxemburg-based Solidarity Takafol, originally an independent takaful insurer established in 1983 and acquired by Solidarity following its formation in 2003.

Solidarity Group has other strategic investments in Oman, Jordan and Malaysia.

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