Savings and investment products – a giant but competitive market
In investment management, insurers must compete not only with their peers but with rival offerings from banking and asset management. On such a crowded playing field, you should not be alone.
Helping you keep your investment management promise
Savings and investment products generate the vast majority of life insurance industry premiums and associated policy reserves.
These assets invested by retail consumers represent a significant expression of trust and belief in the promises made by insurers to deliver attractive returns alongside prudent risk management, enabling consumers to reach their financial goals.
Delivering on that promise has become increasingly difficult as falling interest rates across the globe have eroded the earnings potential of traditional fixed income backed savings products and placed a strain on the capital base of insurers providing valuable guarantees to their customers.
The dominant challenge facing life insurers has become the management of guarantees on legacy saving product portfolios and the design of new products that provide a compelling offer of growth and security in this persistent low interest rate environment.
Low interest rates – a structural challenge
Historically low and even negative interest rates across the globe create many significant challenges for insurers.
With respect to existing business:
- Meeting the annual earnings strain of rate guarantees made in previously higher interest rate environments
- Meeting the immediate capital strain of higher policy reserves due to lower valuation discount rates
- Managing the volatility of credit spreads on higher risk assets required to fulfil legacy rate guarantees
With respect to new business:
- How to design products that offer a balance of growth and protection in a low rate environment
- How to convey to consumers and distributors the value proposition of new products that differ from the traditional offer that has existed for decades
- How to accommodate new product designs within legacy administration systems
Investment management = value creation + capital preservation
Product design framed around the needs of the customer
Scenario 1: Demise of policyholder at age 50
His policy value is € 250K – the highest monthly value attained since he joined. Policyholder’s family receives € 250K, a legacy payout of 125% of the initial single premium.
Scenario 2: Demise of policyholder at age 70
His policy value is € 120K, but the highest monthly value, locked in at € 310K, will be paid at the time of death. Policyholder leaves behind € 310K, a legacy payout of 155% of the initial single premium.
Scenario 3: Policyholder reaches age 99
Since policyholder joined, the highest monthly value locked in is € 310K. Even though the current policy value is only € 220K, policyholder receives the full € 310K, a payout of 155% of the initial premium.