Unit-Linked plays the leading role in the CEE life insurance market

8 February 2012 — Daniela GHETU
Unit-Linked plays the leading role in the CEE life insurance market
xcom_statisticLife insurance products linked to investment funds (usually known as Unit-Linked life insurance) seem to be more and more popular in the CEE region. According to the 3Q2011 data available, the y-o-y nominal growth rate calculated in Euro for this line of life insurance products was of 11.73%, showing a significantly better dynamic than the entire life insurance segment which recorded a slightly negative trend. Calculations made by xprimm.com in local currency demonstrate the same trend, only "translated" in positive figures, as UL insurance GWP grew by about 18.5%, while the entire life insurance segment recorded some 4.3% growth. As a result, UL life insurance line represents now a roughly 40% share of the entire CEE life market.

In fact, this tendency is not new across the region. For many years, UL products were considered one of the best long-term saving choices in the New Europe's countries. After the 2008 financial turmoil, when UL policies' surrender phenomenon registered a historical peak, the investment linked insurance policies were the first to benefit from the financial markets recovery during 2010 and later. It is however interesting to note that the 2011 volatility of the financial markets didn't reiterate the dramatic 2008 fall of the life insurance markets, policy owners contemplating with much more calm the capital markets' oscillations and the fragility of their investment results.

Looking at the growth rates statistics, Bulgaria and Latvia are, by far, the most impressive examples of the absolute preference for UL products. Taking also into consideration the markets' dimensions and weight in the region, Poland and Czech Republic are obviously the really trend setters. The Polish UL life insurance segment increased its share in the life insurance portfolio by almost 5 percentage points, while in the Czech Republic this advance was of about 6 percentage points. Together, these two markets account for about 63% of the UL insurance business of the CEE region, and about 70% of the overall life insurance GWP. Romania and Estonia are the only countries where the UL life insurance line performed worse than the life segment, as a whole.

There is also fair to note that paid indemnities for UL policies registered, at least in some countries, very high growth rates. Czech Republic, Slovenia, Lithuania and Estonia reported in 3Q2011 paid indemnities by over 50% higher as compared to 3Q2010. Although there is no clear evidence with regard to the main reasons of this "aggressive" growth of the amounts paid by insurers, one could assume that surrender rates were again on the raise, following the poor investment performance.

The growing popularity of UL life insurance policies was also emphasized by the European Insurance and Occupational Pensions Authority in its latest report regarding Consumer Trends across the EU. In EIOPA's view, the trend is important not only as a development factor for the life insurance market, but also because of its sensible nature given by the products' complexity. "The underlying funds can be complex and the associated risks and/or costs are not necessarily sufficiently transparent to consumers. Hybrid life insurance products, which combine unit-linked offerings with some with-profit element, have also been considered in this context. Regulators have responded by asking for increased cost transparency or, where their action captures complex products in general, providing guidance on the pre-contractual disclosure or, in one case, calling for a moratorium", says the EIOPA report.


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