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Unit Linked Products

Yannis VasilatosNovember 2013

Definition

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CATEGORY BRIEF DESCRIPTION

Pure UL without guarantees A pure financial savings product, linked to the performance of a particular portfolio, with no financial guarantees attached, but which pays the market value of the units at the earlier of maturity, death or surrender.

Hybrid products They combine merits of traditional participating life insurance and UL products by periodically shifting funds between the policy reserve stock of an insurer (with an interest rate guarantee), a guarantee fund and / or an equity fund.

Variable annuities The funds are placed with an insurance company and the policyholder chooses how the money will be invested. The policyholder chooses from a pre-selected list of guarantees; each guarantee caries a certain cost.

Structured UL

UL guarantees are ensured by periodically allocating assets to risk-free and risky investments; such a mechanism invests funds in a pro-cyclical way and might lead to a cash-lock of the unit price during an observation period.

Capital guarantee products The capital guarantee ensures that the investment is protected from market downturns.

Types of U L products

Main qualities of U L products

Act as a vehicle of regular savings for the purpose of building a personal pension fund.

Flexible risk profile, tailored to the personal risk appetite of the policy owner.

Allow individuals with low available funds to invest in sophisticated investment/financial tools.

Regular premium UL products have an inherent mechanism to absorb the effect of market volatility.

Level of transparency on the performance of each policy is higher compared to traditional insurance products. 4

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Main trends and opportunities

• UL products are leading products in life insurance.

• UL individual pension markets are continuously growing in Europe.

• 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.

• In 2010, UL premiums covered over 62% of total life insurance premiums growing by 53% vs. 2009.

• In 2011, UL insurance GWP grew by about 18.5%, vs. 4.3% growth for the Life market overall.

• UL life insurance line represents now a 40% share of the entire C.E.E. life market.

• Strong customers’ demand for guarantees within UL products.

• UL products are leading products in life insurance.

• UL individual pension markets are continuously growing in Europe.

• 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.

• In 2010, UL premiums covered over 62% of total life insurance premiums growing by 53% vs. 2009.

• In 2011, UL insurance GWP grew by about 18.5%, vs. 4.3% growth for the Life market overall.

• UL life insurance line represents now a 40% share of the entire C.E.E. life market.

• Strong customers’ demand for guarantees within UL products.

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United Kingdom

Romania

Italy

FrancePoland

Country examples

The Greek market experience

• U L products introduced in 1994.

• Launching was strong to be followed by a long period of volatility before nearing maturity.

• Proved resilient during current financial crisis.

• Today UL products represent 21% of Life market GWP vs. 25% in 2008.

• Drove growth of the institutional investors market, adding depth to asset portfolios with long term investment horizon.

• Main challenges related to delays in properly training sales associates and building the right tools to educate customers.

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Focus areas

Action to further analyze and investigate the consumer trends on UL products will be taken, mainly by cross-sectoral analysis under the auspices of the Joint Committee of the European Supervisory Authorities

(ESAs)

Managing challengesManaging challenges

• Taxation for policyholders, company taxes, investment assets

• Regulatory controls on capital, reserves, transparency

• Financial reporting under IFRS, local GAAP

Market evolution – new horizons Market evolution – new horizons

Low interest rates

prevail globally

affecting returns

Managing risk is our business

Guaranteed returns become

very expensive

to offer

Other industries

are copying

UL products

Consumers get more educated every day

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Thank you