Investment-linked sales fall but prospects 'good'

PUBLISHED : Monday, 14 November, 2011, 12:00am
UPDATED : Monday, 14 November, 2011, 12:00am


Volatile conditions have caused sales of investment-linked insurance policies to slow in recent months but insurers still believe in the long-term growth of products linked with the performance of the market.

Roy Halliday, the chief executive of Standard Life Hong Kong, said investment-linked policy sales had eased since August as investors fretted over the European sovereign debt crisis and a possible recession in the United States.

Hong Kong government statistics show investment-linked policy sales are closely related to market performance. Sales of such policies soared to HK$60.04 billion when the Hang Seng Index rose to a record high in October 2007 - three times those of traditional insurance policies which totalled HK$20.31 billion.

Sales fell in 2009 during the global financial crisis to HK$15.06 billion, or about half those of traditional insurance policies. Investment-linked policies have since then been much lower than traditional life policies.

In the first half of this year, investment-linked policies represented 30 per cent of all insurance policies sold, while traditional life policies made up 70 per cent.

However, Halliday is optimistic about the outlook for investment-linked policies.

'When the European sovereign debt crisis stabilises, the market is expected to recover, and policyholders of investment-linked policies can also expect returns to stabilise,' he said. 'Some investors consider now is a good time to buy when prices are depressed.'

Investment-linked policies have been popular in Hong Kong as they are a combination of insurance protection and investment funds.

Standard Life's products allow investors to invest their premiums in different classes, unlike traditional policies where the insurance companies invest the premiums and pay dividends to policyholders.

The British insurer sells investment-linked policies and traditional policies through 240 independent financial advisers in the city.

Halliday said that during the global crisis in 2009, sales of the company's investment insurance policies rose 51 per cent year on year, despite an industrywide drop of more than 57 per cent.

In terms of choice of funds, he said investors tended to pick more conservative ones, such as bond funds instead of volatile stock funds.

Yuan-denominated funds were also a favourite. They allow investors to speculate on the appreciation in the currency, which has risen 20 per cent since 2004.

'We are definitely considering putting yuan-denominated funds into our investment-linked products fund choice. However, there are still limited options available for funds denominated in yuan,' Halliday said.

Canadian insurer Manulife Hong Kong chief executive Michael Huddart said investment-linked sales moved in line with market sentiment.

'The outlook for these investment-linked plans is good, especially if we see some market recovery in 2012 and beyond. There is still a great need for accumulating wealth to pay for living costs and medical costs in retirement and these plans can be a useful vehicle to achieve this goal,' Huddart said.

Stuart Harrison, the chief executive of AXA China Region Insurance, said the firm had not seen much impact on investment-linked business from recent market movements.

'It is important to note that investment-linked plans are meant to be long term in nature and therefore should not be impacted by short-term fluctuations,' Harrison said.

Based on findings from customer focus groups, there had been healthy demand for investment-linked products in recent years and AXA would continue to strengthen its products suite to meet their needs, he said.