BNP Paribas Cardif has accumulated a total of KRW90bn ($84m) in sales over the last year through its two newly launched variable annuities – ELS Master Index Linked Variable Annuities and ELS Pro Index Linked Variable Annuities. This suggests that variable annuities are getting traction in the South Korean market.

SRP data shows that currently there are 17 live variable annuities offered by BNP Cardif, of which 11 are part of the ELS Master Index Linked Variable Annuities series and six of the ELS Pro Index Linked Variable Annuities series.

Seon Ah Moon, general manager at BNP Paribas Cardif, told SRP that the two new variable annuities are the first of their kind in South Korea, and that they are gaining traction among investors seeking above interest rate returns.

“Although the yields [offered by] these variable annuities are lower than those of equity-linked securities (ELS), the returns gained from investing in ELSs through variable annuities are not subject to the aggregated financial income tax,” he said. “[Variable Annuities also have a] better tax advantage if investors keep the products for a longer term.”

The ELS Master Index Linked Variable Annuities is a growth and income product linked to the performance of a basket of indices (Kospi 200, Hang Seng China Enterprises, S&P500, Hang Seng Index, DAX, FTSE100, and Nikkei225) based on a knock out/portfolio insurance payoff and is aimed at conservative investors, while the ELS Pro Index Linked Variable Annuities, although it replicates the payoff and underlying structure, is a growth product aimed at more risk-oriented investors with the fund manager allocating new ELSs to the underlying portfolio once the subscribed ELSs knock out or mature.

According to Moon, the BNP variable annuities address a problem faced by investors when ELS products mature. “Often, investors struggle when choosing another ELSs to invest in once their previously subscribed ELSs knock out or mature, but our variable annuities are managed by authorised asset management companies and investors will not need to worry about which ELSs to reinvest,” Moon said.

VA market
Moon said that although the popularity of variable annuities in South Korea has receded as a result of the global financial crisis which saw many investors invested in variable annuities incurring in losses, regulators have strengthened guidelines around these products.

“Given that these newly launched variable annuities have recorded noticeable sales records, I believe it means a lot to the market,” he said.

Last year, most of the ELSs tied to ELS Master Index Linked Variable Annuities or ELS Pro Index Linked Variable Annuities matured within six months and recorded average annualised returns of between 7% and 8%.