This report by Milliman consultants covers the capital regimes in 10 markets in Asia plus the 2018 International Capital Standard field test. The report seeks to provide a comparison of key quantitative and qualitative aspects of life insurance capital regimes in Asia and an analysis of key capital results based on information publicly available and other market sources.
As insurance companies prepare themselves for the new International Financial Reporting Standard (IFRS) 17, Takaful companies are facing significant uncertainty in how to interpret and apply the standard to their businesses. Interpreting IFRS 17 for Takaful business is not a straightforward process. This paper by Milliman’s Farzana Ismail, Clement Bonnet, and Philip Simpson highlights several key issues and challenges in implementing IFRS 17 for Takaful business.
In July, the Ministry of Finance in Vietnam released proposed amendments to a number of articles associated with its existing Circular 50 regulation that guides the implementation of Insurance Business Law. This e-Alert gives an overview of the proposed amendments to Circular 50.
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 and pricing
• Capital and solvency requirements
• Policyholder protection
• 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.
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.
Even without the advent of Solvency II and the appeal of internal models to model capital more accurately, it’s likely that the events following the global financial crisis (GFC) would have sharpened up European insurance companies’ risk modeling capabilities.
In Asia, insurance companies are also investing significant resources in developing their own economic capital models. Boards of directors have been charged with the measurement of risk and the need to plan their capital requirements through such things as an Own Risk and Solvency Assessment (ORSA) and an Internal Capital Adequacy Assessment Process (ICAAP) in Singapore and Malaysia, respectively.
Much has already been written about building complex Monte Carlo engines to calculate risk measures. This report by Milliman’s Clement Bonnet and Nigel Knowles addresses a question about the front end of the risk measurement process: How do we project our yield curve?