Milliman: Participating business in AsiaApril 21 2015
Participating (par) business represents a significant proportion of the new business being sold in Asian markets, but the current economic environment of low interest rates is testing the viability of existing product offerings. As well as the concerns over continued low interest rates, other potential threats to par business include tightening of prudential regulation (including the influence of Solvency II) and strengthened governance requirements and the risk of mis-selling.
The results of a 2013 Milliman survey of life insurance executives in the region highlighted that demand for par products from distributors and customers is still strong, but the companies themselves perceive the profitability of these products to be low.
Against this backdrop, we have carried out a review of par business in selected Asian markets (China, Hong Kong, India, and Singapore) to gain a better understanding of the issues facing providers in these markets. Where available, we make use of data from the public domain to identify the current trends that are defining the par business markets.
We have also provided a historical review of how par business (also called ‘with-profits’ business in the UK) evolved in the UK, with the purpose of highlighting some of the lessons that can be learned from this older market. We consider how par products there have changed over time, and whether similar product innovation might be appropriate in Asian markets too.
In particular we consider the concept of unitised with-profits (UWP), which, so far, has had limited use in Asia. We look at whether it can address some of the current issues identified with traditional par business, and how it compares to other product types from both the policyholder and shareholder perspectives. We base this analysis on a prototype pricing model, using Singapore as the example market and regulatory framework on which to base it in.
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