Insurance firms across Asia are as keen as ever to expand their unit-linked product (ULP) businesses to ease the pressure on their balance sheets, and those in Thailand are no different.
Some are making a push in this area—last week UK insurer Prudential inked a tie-up with Bankgkok-based Siam Commercial Bank (SCB)—but ULPs remain a hard sell to customers used to guaranteed returns.
ULPs combine insurance with underlying investments such as funds, and their performance is linked to these assets’ performance rather than offering returns guaranteed by the insurer. Hence they reduce the risk on insurance firms’ balance sheets.
As of end-2015, ULPs accounted for just 0.5% (Bt83.3 billion) of the total Bt16.7 trillion ($464 billion) insured by life insurers in Thailand, according to the latest figures available from the Thai Life Assurance Association.
Thai insurance executives told AsianInvestor that the local ULP market had been picking up in the past couple of years, albeit from a very low base, but declined to provide figures to show this.
“This is a market that’s been talked about in Thailand for many years, and finally it’s come of age and is gaining traction,” said Paul Carrett, group chief investment officer of Hong Kong-based FWD Group. The firm’s Thai business started selling ULPs in mid-2015, and its bancassurance partner is TMB Bank.
Prudential also envisages growth in this area. The unit-linked bancassurance partnership it has struck with SCB, one of Thailand’s biggest banks, will take effect on February 1. SCB will add to the insurer’s ULP distribution channels, which include Thanachart Bank, Tisco Bank and UOB Bank, said a spokeswoman for the firm via email. Prudential, which has been selling ULPs in Thailand since 2011, will only sell such products through SCB, she added.
Thai insurers are certainly trying to grow the business of their unit-linked business so they can pass on some investment risk, said Vasin Vanichvoranun, executive chairman of Bangkok-based Kasikorn Asset Management.
However, the ULP business is tough to build, because agents need different training to be able to sell ULPs, said Sutee Mokkhavesa, risk, strategy and unit-linked investments at Muang Thai Life, which has $12 billion under management. Out of an agency force of about 25,000, he said his firm only had about 1,000 qualified to sell them.
“Agents need to up their game in terms of financial literacy [for unit-linked business],” said Sutee. “Selling guaranteed products is easier. With ULPs you need to talk about different economic and market cycles, the risks customers will face, whether they should switch funds.”
Ultimately, most clients prefer traditional products with high guarantees; to change that will require more time, noted Sutee. “But I do think the business will grow.”
David Lomas, New York-based head of BlackRock’s insurance asset management business, agreed: “ULPs provide exposure to the market for customers who have typically bought guaranteed products. So the salespeople need to be able to inform clients properly, to be equipped to have conversations around that.”
In the meantime, Thai insurers are finding returns particularly hard to come by from their traditional core investments in local bonds. The benchmark domestic interest rate is close to a record low at 1.5%, where it has been since 2015.
They are looking to diversify more into equities and alternative assets, including those overseas, to boost returns. But they are holding off on making major allocation changes until looming risk-based capital rules are finalised—as is expected early this year—so that they know what level of risk charges will be imposed on certain assets.
An extended, in-depth feature about how Thai insurers are rethinking their asset allocations appeared in the December/January issue of AsianInvestor magazine.