PRODUCT DEVELOPMENT IN A LOW INTEREST RATE ENVIRONMENT

Transcription

1 PRODUCT DEVELOPMENT IN A LOW INTEREST RATE ENVIRONMENT November 2011 Lyndall Wilson

2 Specify Problem Design & Implement Solution AGENDA Actuarial Control Cycle External Forces Monitor Effectiveness of Solution

3 EXTERNAL FORCES Low Interest Rates - Downward Trend External Forces Source: U.S. Department of the Treasury, Bank of England, HKMA, & Europa.

4 SPECIFY DESIGN & THE IMPLEMENT PROBLEMTHE SOLUTION External Forces Specify Problem Investment Strategies Meeting Clients' Needs With Product Solutions Design & Implement Solution Efficiency Pricing

5 Investment Strategy Robust risk management framework Asset Liability Matching Investment Strategies Meeting Clients' Needs With Product Solutions Efficiency Pricing

6 Investment Strategies Meeting Clients' Needs With Product Solutions Source: Yahoo Finance, U.S. Department of the Treasury, Bank of England, HKMA, Europa, Office of the Commissioner of Insurance

7 Investment Strategies Meeting Clients' Needs With Product Solutions Whole Life Endowment Source: Office of the Commissioner of Insurance

8 Source: Yahoo Finance, Office of the Commissioner of Insurance

9 Unit-Linked Wide range of funds Seamless Wide range switches of ASIAN BASED funds Customer return expectations By 2015, the top ten Asian countries is expected to be Over Country the next five, Number ten years, of HNWI the growth in high (thousands) net worth will be structurally a much stronger story 2. in Asia Indiacompared to other 403 parts of the world. $2,465 Amar Gill, head of special projects research at CLSA Wealth of HNWI (billions) 1. China 1,378 $8, South Korea 310 $1, Taiwan 136 $ Hong Kong 131 $711 Low Level of security / guarantees Level of security for customer Source: According Julius Baer Wealth Report

10 Customer return expectations Whole Life Endowments Savings Protection on Death Savings Protection on Disability Low Level of security / guarantees Level of security for customer

11 Customer return expectations HK Cancer Incidence Trend Endowment Low Level of security / guarantees Level of security for customer

12 Customer return expectations Whole Life Endowments Savings Protection on Death Savings Protection on Disability Savings Protection on CI Low Level of security / guarantees Level of security for customer

13 Customer return expectations Whole Life Endowments Unit-Linked Savings Protection on CI Critical Illness Female & Juvenile Multiple & Tiered Low Level of security / guarantees Level of security for customer

14 Customer return expectations Whole Life Endowments Unit-Linked Savings Protection on CI Critical Illness Female & Juvenile Multiple & Tiered Value Adds CI ASSISTANCE Low Level of security / guarantees Level of security for customer

15 Customer return expectations Whole Life Endowments Unit-Linked Savings Protection on CI Critical Illness Female & Juvenile Multiple & Tiered Value Adds Longevity Protectors LONGEVITY PROTECTORS Short-term expenses? Long-term expenses Low Level of security / guarantees Level of security for customer

16 Customer return expectations Whole Life Endowments Unit-Linked Savings Protection on CI Critical Illness Female & Juvenile Multiple & Tiered Value Adds Longevity Protectors LONGEVITY PROTECTORS Low Level of security / guarantees Level of security for customer

17 Customer return expectations Whole Life Endowments Unit-Linked Savings Protection on CI Critical Illness Female & Juvenile Multiple & Tiered Value Adds Longevity Protectors Exclusion Discounts EXCLUSION DISCOUNTS Low Level of security / guarantees Level of security for customer

18 Customer return expectations Other Savings Universal Life Low Level of security / guarantees Level of security for customer Source: LIMRA

19 Sitting Whole Life Endowments Getting up from a chair Walking Lifting Critical Illness Functional Impairment Cover Walking up and down stairs Bending and kneeling Using your hands Reaching with you arms Performing domestic duties Driving Physical Test Seeing - Failing this test on its own qualifies for a claim Source: LIMRA

20 Other Savings Retirement Savings Deferred Annuities Variable Annuities Customer return expectations Other Savings Retirement Savings Vehicles Level of security for customer Low Source: Axco Global Statistics / Industry Associations and Regulatory Bodies Level of security / guarantees

21 60% Female 2.5 million elderly 2.5 million elderly Customer return expectations Other Savings Retirement Savings Vehicles HK (2050) = 39% popn>65 Level of security for customer Low Level of security / guarantees Source: The World Bank Group, U.S. Census Bureau, Census and Statistics Department: The Government of the Hong Kong SAR

22 Unit-Linked 2.5 million elderly Customer return expectations Other Savings Retirement Savings Vehicles 50% 80% 100% Level of security for customer Low Level of security / guarantees

23 Customer return expectations Dependent Daily Living Age 60 to 79 6% Age % 2.5 million elderly HK (2050) = 39% popn>65 Long Term Care Level of security for customer Low Level of security / guarantees Source: China Population Statistics Yearbook 2005, U.S. Census Bureau

24 Long Term Care Insurance Regular payments are made when insured unable to perform 2/3 activities of daily living Increase in Combination Long Term Care Plans Whole Life Retirement Savings LTC Source: LIMRA

25 Mortgage repaid Children no longer dependent Accumulated savings With age, more susceptible to needing long-term care LIFE COVER LTC COVER Young Old Young Old

26 Whole Life and LTC All of the Death Sum Assured can be available for LTC benefits Small percentage can be made available per month until exhausted Death Additional Sum LTC Assured Pool Cash Value

27 Success Of Combination Long Term Care Plans Cost effective Market differentiator Multiple-source profit Customer return expectations Long Term Care Combination LTC Long Term Care Low Level of security / guarantees Level of security for customer

28 Customer return expectations Compound Interest Endowments Unit-Linked Wide range of ASIAN BASED Demographics funds Savings Protection on CI Critical Illness Other Savings Value Adds Longevity Protectors Exclusion Discounts Functional Impairment Cover Long Term Care Combination LTC Low Level of security / guarantees Level of security for customer

29 Efficiency External Forces Specify Problem Investment Strategies Meeting Clients' Needs With Product Solutions Design & Implement Solution Efficiency Pricing

30 Efficiency 1. Distribution Worksite Marketing Technology 2. Product Target better lives 3. Internally Communication and discussion 4. Transfer risk Reinsurers Meeting Clients' Needs With Product Solutions Efficiency Investment Strategies Pricing

31 Pricing External Forces Specify Problem Investment Strategies Meeting Clients' Needs With Product Solutions Design & Implement Solution Efficiency Pricing

32 Pricing Crediting strategy Tilts and bends in yield curves Stochastic pricing techniques Resulting Premium: More flexibility with less guarantees Investment Strategies Meeting Clients' Needs With Product Solutions Efficiency Pricing

33 Pricing Better interior 2012 Audi Q Ford Explorer A healthy balance sheet Sound premiums, so that they don t risk losing their entire policy down the line Exceptional service Price $53,100 $33,955 Fuel Value Economy adds which make insurance 16 / 25 mpg more tangible 17 and / 25 relevant mpg (city/hwy) And professional advice Standard Engine V6, 3.0L V6, 3.5L Rating

34 MONITOR EFFECTIVENES OF SOLUTION Specify Problem Design & Implement Solution External Forces Monitor Effectiveness of Solution

35 MONITOR EFFECTIVENES OF SOLUTION Prompt Action Needed Source: Government Bond Yields are from IMF International Financial Statistics Browser Technical interest rates are from Japan Financial Report No.9 By Japan Center for Economic Research

36 Specify Problem Design & Implement Solution PROFESSIONALISM External Forces Monitor Effectiveness of Solution

37 CONCLUSION Opportunities - Demographic Interest rate movements by their nature are unpredictable but reversible DEMOGRAPHIC CHANGES during our lifetime are irreversible Unit-Linked External Forces Customer return expectations Long Term Care Other Savings Combination LTC Level of security for customer Low Level of security / guarantees

38 CONCLUSION Opportunities - Catastrophic DEMOGRAPHIC CHANGES CATASTROPHIC EVENTS Natural Catastrophes Worldwide Unit-Linked External Forces Customer return expectations Whole Life Other Savings Functional Impairment Cover Low Level of security / guarantees Level of security for customer

39 Investment Strategies Specify Problem CONCLUSION Opportunities Meeting Clients' Needs With Product Solutions Design & Implement Solution External Forces

40 CONCLUSION Opportunities DEMOGRAPHIC CHANGES CATASTROPHIC EVENTS REAL NEEDS Unit-Linked Wide range of ASIAN BASED funds External Forces Customer return expectations Combination Long Term Care Endowments Savings Protection on CI Critical Illness Value Adds Longevity Protectors Other Savings Exclusion Discounts Functional Impairment Cover Level of security for customer Low Level of security / guarantees

41 Specify Problem Design & Implement Solution CONCLUSION Opportunities Meeting Clients' Needs With Product Solutions Efficiency Pricing Investment Strategies External Forces

42 Specify Problem Design & Implement Solution Monitor Effectiveness of Solution CONCLUSION Opportunities External Forces

43 TO END OFF

44 THANK YOU For more information, please feel free to contact: Lyndall Wilson, BSc, PGDip (Actuarial), FIA Senior Actuarial Manager, Life Reinsurance Munich Reinsurance Company Beijing Branch Tel: (86)