Asia:Growth in EV boosted by focus on protection business

In 2018, total reported Asian EV grew by 5.3% on a comparable basis to $756bn, up from $718bn in 2017, according to an analysis by Milliman, a premier global consulting and actuarial firm. The companies reporting the largest Asian EV at the 2018 year-end continue to be China Life, Ping An Life and AIA, at $116bn, $89bn and $55bn, respectively.

In its “2018 Embedded Value Results: Asia” report, Milliman presents the findings of its annual study on reported year-end 2018 embedded value (EV) and value of new business (VNB) results for 52 major multinational and domestic life insurers across Asia. This year's edition includes the Japanese market, which was previously excluded from the Asia report and included as part of Milliman's Europe report given the similarities in market-consistent EV methodologies used in these markets.

Vietnam reported the highest comparable EV growth in 2018 of 39%. However, this is primarily due to its smaller base EV value and because there is only one data point in the market, Dai-ichi Life Vietnam.

China and India continue to lead growth in the Asia region. Despite the regulatory clampdown on the sale of high guarantee short term universal life business in China last year, the increased focus on protection business has helped drive positive EV growth. Similarly, in India, increasing sales of protection business is one of the main reasons for the market posting one of the highest EV growth rates in Asia.

"As yield curves remain at historically low levels throughout Asia, it is the companies that have successfully transitioned away from the traditional guaranteed long-term savings products that have typically reported the highest growth in EV and VNB," said Milliman principal and consulting actuary Paul Sinnott. Several companies in Southeast Asia also improved results through enhancing distribution channels' productivity. 

Growth in adjusted net worth (ANW) was varied in fiscal year (FY) 2018. Vietnam posted the largest percentage growth in ANW, followed by India and China, while Taiwan reported the biggest fall of 16%. VIF (value-of-in-force business) growth was positive for almost all markets except for Japan and South Korea. Common reasons cited by insurers for increasing VIF results were increased focus on protection products and improved productivity of distribution channels. Insurers in South Korea cited a fall in investment return assumptions as the main reason for their declining VIF results.

A certain amount of caution must be exercised when evaluating Japanese company embedded values, especially when comparisons are made across Asia. Japanese companies typically report on a market-consistent basis, either MCEV or MC-EEV. In addition, many companies manage large blocks of legacy policies with relatively high guarantees (in some cases, in excess of 5%). As a result of these two factors, many companies have a very small (or even negative) VIF compared to the size of the in-force block. On a percentage basis, this VIF is extremely sensitive to changes in interest rate environment.

However, due to the use of market-consistent approach, and asset liability management, changes in VIF are often substantially offset by changes in adjusted net worth. As a result, overall EV, though sensitive to changing market yields, is far less sensitive than the individual VIF and ANW components. The scope of the report is limited to EV results directly related solely, or predominantly, to Asian operations. Insurers with a presence in Asia that do not provide separate results for the region are not included in the report.

Source: Asia Insurance Review