John Jenkins, Milliman UK, and Hana Ghazali, Milliman Malaysia, preview their IFoA Asia Conference 2023 presentation, exploring par business in life insurance portfolios in Asian markets
Participating (‘par’) business or with-profits business has been a significant portion of life insurers’ portfolios across many Asian markets for many years. However, in an evolving market landscape, sales of par business have been declining in certain countries, and this has been the case in Malaysia over the last decade.
Where par business is written in a segregated fund, such as in India, Malaysia, and Singapore, shrinking par funds create specific challenges that actuaries need to manage. These include the balancing act between distributing any excess estate while retaining sufficient assets for remaining policyholders, avoiding tontine effects, and avoiding any other surprises that may arise as the fund shrinks.
In practice, a number of these issues can also arise in par funds that are still open to business but contain closed blocks or tranches. For example, the maturing of a block of business within an open fund could result in higher per-policy fixed expenses for the remaining policies.
In Malaysia, regulations on the management of par business (‘MPB’) have recently been updated to include requirements related to par funds that are small, have been on a declining trend, or are expected to shrink to an unsustainable level.
These requirements include conducting regular monitoring and assessment of the key risks within the par fund, projecting the par fund for the next five years, and outlining remedial and mitigation action plans.
In our presentation at the IFoA Asia Conference 2023, we will start by looking at the landscape of par business in Asia, the emerging trend of the declining sales of par business in selected Asia markets, and the challenges that actuaries face in managing a shrinking par fund.
We will then spend the rest of the presentation looking at real-world case studies of some of the different approaches companies have used as part of managing the run-off of their par funds.
In particular, we will draw from experience in the UK, where sales of par business have declined rapidly since the early 2000s. We will identify the key lessons learnt from the UK with-profits market, which can help guide actuaries in Asia to address the new emerging phenomenon of declining par business in certain markets such as Malaysia and Vietnam.
As actuaries strive to create a sustainable future in the management of par funds, we should take steps to ensure that shrinking par funds, or indeed par funds with closed blocks of business, are managed in the best interests of all stakeholders: policyholders, regulators, insurers, and the wider public.
We look forward to discussing the way forward with colleagues and friends across the region at the IFoA Asia Conference!
Don’t miss John and Hana at the IFoA Asia Conference 2023 on 26 September, in Kuala Lumpur. Book your place before 15 September.
