The End of High Guaranteed Savings Insurance?

Estimated reading time 6 minutes
04 Nov 2021
The End of High Guaranteed Savings Insurance?
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04 Nov 2021

Estimated reading time 6 minutes

Historically traditional participating whole life insurance products (with guaranteed and non-guaranteed returns) have been the most popular in the Hong Kong insurance market. With the pandemic and quantitative easing by central governments around the world since 2020, interest rates have continued to be at record lows. Coupled with the upcoming Risk Based Capital (“RBC”) regulatory change, insurance companies can no longer afford to offer products with high return guarantees. Going forward we expect to see these products replaced by low capital-intensive products with low guarantees. 
 
Only few remaining products with 30-year guaranteed IRR of over 2.0%

The whole life savings insurance products in the market can generally be classified into guaranteed return focussed and project return focussed. Projected return focussed products tend to invest more in growth assets like equities and can project higher long-term returns, but mostly non-guaranteed. Guaranteed return focussed products tend to invest more in conservative assets such as bonds, have lower total projected returns but the guaranteed component to the policyholder is higher. 10Life has compiled the products with the highest guaranteed returns (depending on premium payment period).   

Top Guaranteed Returns Whole Life Savings Insurance
(30 Year IRR > 2%)

Contribution period Insurance companies/ Products 30 Year IRR  Remarks
Guaranteed Projected
1-3 year
1 year AIA
Single Premium Whole Life AP - Par
2.4% 3.9% Shelved soon at the end of 2021
1 year Fubon Life
Fubon Brilliant Wealth Whole Life Plan
2.0% 3.2% Shelved on Apr 2021
3 year AIA
Executive Life
2.3% 4.2% Shelved on Dec 2020
4-8 year
5 year China Taiping
Taiping EliteLife Protection Plan
2.7% 4.9% Shelved on Mar 2021
5 year AIA
Executive Life
2.3% 4.2% Shelved on Dec 2020
5 year Chubb
Custom Whole Life (100% Life Protection)
2.1% 4.5% -
6 year FWD
Eternity Savings Insurance Plan 6
2.0% 4.6% -
9-12 year
10 year China Taiping
Taiping EliteLife Protection Plan
2.6% 4.7% Shelved on Mar 2021
10 year AIA
Executive Life
2.3% 4.0% Shelved on Dec 2020
10 year Chubb
Custom Whole Life (100% Life Protection)
2.0% 4.6% -
15-30 year
15 year AIA
Executive Life
2.3% 4.0% Shelved on Dec 2020
20 year China Taiping
Taiping EliteLife Protection Plan
2.3% 4.5% Shelved on Mar 2021
20 year Chubb
Custom Whole Life (100% Life Protection)
2.2% 4.3% -
Remarks:
1. Information above updated to 2 November 2021. All information is intended for general education purpose and reference only, and does not constitute any insurance purchase advice.
2. The insured is 35-year-old male, non-smoker; premium paid annually on time, with total premium of USD100,000; no policy loan, partial cash value and/or dividends/bonus (if any) redemptions made during the specified policy period.

As show in the table above, AIA’s Single Premium Whole Life AP - Par can offer 2.4% 30-year guaranteed IRR, highest among the remaining products. The latest market news is that this product will also be shelved soon at the end of 2021. 

Other popular high guaranteed whole life savings products such as AIA's Executive Life, Fubon Life's Fubon Brilliant Wealth Whole Life Plan, and China Taiping's Taiping EliteLife Protection Plan have already been shelved over the past year.

While a 2% guaranteed annualised return may seem low to some people, bear in mind that hardly any investment or savings vehicles can provide such long term guaranteed returns these days. Besides these whole life savings insurance products also provide potential projected returns in the range of 3.9% to 4.6% p.a. (30-year IRR).

Prolonged low interest rates + RBC = Perfect storm for traditional life insurers?

In addition to the prolonged low interest rate environment, the Hong Kong Insurance Authority has been developing new regulations for insurance companies to meet new risk-based capital (“RBC”) requirements to better protect policyholders. The new regulations will require insurance companies to explicitly take into account the risks they are taking into the capital requirement calculations. This means that insurance companies may no longer afford to take investment risk by offering return guarantees in their products while investing in higher yielding risky assets.

With this double whammy, life insurance companies in Hong Kong are likely to shift their sales of traditional whole life products from guaranteed focussed to projected return focussed. To further reduce the capital requirements and maintain profitability, insurers may further switch to low capital-intensive products with no guaranteed cash values, such as pure protection and investment linked products.

Note: The above information is provided by 10Life and as of Nov 2, 2021. All information is intended for general education purpose and reference only, and does not constitute any insurance purchase advice.

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