Back to Blogs
Shutterstock 382756177
Share this Article

New business surge leads to embedded value growth in Asia

  • Publish Date: Posted almost 7 years ago

In a study that shows reported year-end 2016 EV results for several major insurance companies operating in Asia, excluding Japan, Milliman, the global provider of actuarial and related products and services said the total reported Asian embedded value (EV) grew by 15.3 percent on a comparable basis to US$339bn in 2016 from US$294bn in 2015.

Among 18 companies which had reported EV by the time of the report, China Life at US$94bn, Ping An Life at $52bn and AIA at $42bn were posting the largest Asian EV at the 2016 year-end.

By insurer, Zurich, Prudential and New China Life reported the largest growth in EV during 2016.

Zurich reported a 36 percent increase which was driven by favourable operating assumption changes as well as capital injections. Prudential reported a 35 percent increase which came from strong growth in VNB as well as favourable exchange rate movements from the depreciation of sterling in 2016. New Life China also reported an increase of 25 percent.

In 2016, growth in value of in-force business (VIF) was positive for all countries, underpinned primarily by strong value of new business (VNB) results and, in some cases, increasing long-term investment return assumptions.

The largest VIF growth of 31 percent was from South Korea, mainly from strong margin-driven growth in VNB across all companies, despite a fall in new business annualised premium equivalent (APE). Hong Kong also posted strong VIF growth of 20%, mainly from significant VNB contributions, in particular large volumes of new business sold to mainland Chinese visitors.

Total reported VNB for Asia stood at $35.0bn in 2016, compared with $25.0bn in 2015, representing a 40 percent growth.

By market, Hong Kong and China reported the highest growth in VNB on a constant currency basis, largely driven by significantly higher new business premiums (India’s 62 percent VNB growth is purely based on ICICI Prudential, which was the only company to disclose FY2016-17 EV results by the report data cut-off date). The strong growth in VNB was mainly driven by large volumes of new business and increased margins associated with a shift away from savings to protection products. The Hong Kong results reflect AIA’s growth in VNB, with about half the new business sales being to mainland Chinese visitors.

Indonesia and Thailand reported reductions in VNB; the former was mainly due to Prudential Indonesia experiencing reduced new business sales because of ‘systemic challenges in the economy’, while the latter was mainly driven by AIA Thailand seeing “lower new business volumes including reduced activity… during the mourning period following the passing of the Thai king”.

Ping An and ICICI Prudential reported the largest growth in VNB, at 65 percent and 62 percent, respectively, driven by increased new business sales for both, a change in capital requirements for Ping An, and improvements in persistency for ICICI Prudential.

Based on the various EV disclosures, the most profitable life insurance new business in 2016 appeared to be sold in Thailand, Indonesia and Hong Kong. Thailand’s increased margin is surprising in the context of the very low yield curve over the last year but it does reflect AIA Thailand’s success in refocusing sales efforts into higher-margin long-term protection business and capital-efficient unit linked products. The VNB data for Thailand is based on one AIA data point, however, with a margin that is unlikely to be replicated across the whole industry. Meanwhile, Indonesia and Hong Kong saw lower margins than in 2015, reflecting lower reported profitability of new business for Prudential Indonesia, and material falls in margins for AIA Hong Kong and Manulife Hong Kong.

Life insurance sales continued to rise strongly in Asia during 2016, with gross written premium (GWP) estimated to have increased by 28 percent, with China’s 43 percent growth being a major contributor.

EV methodologies used in the region remain varied, including Traditional Embedded Value (TEV), European Embedded Value (EEV), Market-Consistent Embedded Value (MCEV4 ) and Indian Embedded Value (IEV).

The report examines the EV results published by MNCs and domestic insurers within Asia, excluding Japan. The scope of the report is limited to EV results directly related to solely, or predominantly, Asian operations. Insurers with a presence in Asia that do not provide separate results for the region are not included in this report.

In 2016, the number of multinational corporations (MNCs) reporting EV in Asia declined. The increased focus on Solvency II reporting in Europe has resulted in diminished embedded value reporting for some insurers. Ageas no longer discloses its Asia EV results separately and Aviva has stopped disclosing group MCEV results, although 2016 market consistent value of new business figures have been published, including separate Asian results. AXA also discontinued the disclosure of its Asia EV in 2016, although it did produce 2016 Asia VNB on a market-consistent EEV basis. On the other hand, three Indian insurers, Exide Life, Reliance Life and SBI Life, published their EV results for the first time for the financial year ended 31 March 2016.