Zurich Life has become the second international life company to close for new business in Singapore in the second half of this year, due to a lack of sufficient scale and risk appetite.
Effective today, the Zurich life businesses in Singapore (Zurich Life Insurance Singapore and Zurich International Life) will no longer accept new policy applications. No announcement has been made on whether the Swiss firm will try to sell its existing business or plans to pay off its in-force policyholders.
The news follows the closure of Standard Life’s Singapore insurance business in July this year, at a loss of $67 million.
Colin Morgan, Asia-Pacific chief executive of Zurich Life, said: “Our decision to no longer accept new life policy applications in Singapore did not come lightly, but is a necessary action.
“Zurich needs to focus its resources on the markets and customer segments where it has a real competitive advantage," he added. "We spent a long time exploring the different options, but this unfortunately was the most feasible and practical under the current circumstances."
International financial services players are drawn to Singapore by the prospect of a core of wealthy investors. According to the Life Insurance Association Singapore (LIAS), sums assured in the local life business grew 7% in the year to December 31, 2014, totalling S$88.7 billion. Zurich Life said its overall market share was 2%.
Morgan told AsianInvestor it had become clear that Zurich’s Singapore life business did "not have a distinctive enough position in the market".
Moreover, the firm's review of the business “clearly showed that the execution risk of growing to the scale needed to deliver sustainable profitability and long-term return was too great", he added.
Zurich's strategic focus meant it was not planning to enter the dominant participating product (par) market, he added, meaning its Singapore life business would remain a niche player, primarily offering products in the limited defined market segment (DMS) market and a limited number of products in the non-par market.
For par policies, insurance companies will charge higher than necessary premiums with the intent of returning the excess. Excess premiums are charged because the insurance company will operate based on more conservative estimates. Such policies are essentially a form of risk sharing, where the insurance company shifts a portion of risk to policyholders.
Par products accounted for 53% of new sales in Singapore in 2014, non-par products 28% and investment-linked products the remaining 19%, according to LIAS.
Morgan said the firm had a market share of 41.4% of the DMS market, which caters for a high-net-worth market defined by a minimum premium size, and its members are not permitted to handle business for Singapore's Central Provident Fund. DMS insurers accounted for just 5% of new sales in 2014 in the city, according to LIAS.
Zurich will now be concentrating on its core markets in Asia – namely Australia, Hong Kong, Indonesia, Japan and Malaysia – and would not make any other changes to business strategy in the region in the foreseeable future. He declined to disclose the levels of premium income growth in these core markets.
The Singapore exit comes after Zurich Life's 2013 closure of its Hong Kong insurance agency books without providing ongoing security of service to its clients and of business for its agents.
One industry insider argued it was very unwise not to try to sell the business on to provide continuity – as, for example, HSBC did when it sold its agency business to AIA. “They just shut the doors,” he added.
The closure does not affect Zurich’s general insurance business in Singapore.