Variable annuities have propelled Dai-Ichi Life Insurance to the top of Japan’s variable annuity (VA) market, with its overall income putting it ahead of Nippon Life Insurance for the first time since 1945. Dai-Ichi recorded income of around $40bn (¥4,767bn) for the six months between April and September 2014, according to Japan’s Financial Services Agency (FSA).
The income marks “an increase of 262% compared with the same period last year,” said a spokesperson of Dai-ichi. “Foreign currency-denominated products with two parts – a fixed and variable amount - which we launched for the first time this year, took up 80% of total sales of variable annuities, with the Australian dollar-denominated tranches especially popular.” The other preferred foreign currency denomination was US dollars.
The majority of variable annuity sales were conducted by Dai-ichi Frontier Life Insurance, a subsidiary of Dai-ichi Life Insurance, with the new products meeting the risk profile requirements of investors, said the spokesperson. “Since the financial crisis in 2008, investors are reluctant to take excessive risk, which led to a plunge in demand for variable annuities in the following years,” said the spokesperson.
“Though the expectations of an economic upturn brought about by Abenomics have stimulated investors to seek higher profits, there is still hesitation. Products with a guaranteed fixed amount in addition to variable payout have catered well to investor preference for leveraged return with limited risk exposure.”
Apart from responding to market needs, these products also carry the advantage that they are relatively easy to structure. “Around 10% of the capital invested will be placed in the variable leg, and since it is not an amount guaranteed, there is no necessity to hedge,” said the spokesperson. “Given that it is only around 10%, the downside risk is very limited. The remainder is invested in non-risky assets, such as vanilla bonds, to secure the targeted return.”
Dai-ichi Life Insurance has also declared its intention to expand its variable annuity business into the United States, when it confirmed, on 16 December, the acquisition of Protective Life Corporation, a large US life insurance company, which has a variable universal life insurance business that was ranked eleventh in the US market in 2013. The sale is expected to be completed on February 1, 2015.
“We will respect the business policy of Protective Life Corporation after the acquisition, and expect to attain growth by striking a balance between savings and guaranteed returns,” said the spokesperson. “As for our local business, we will continue to offer variable annuity solutions in response to customer needs, of which the call for adequate risk control is still dominate.”
According to the report from the FSA in early December, in the first six months of this financial year, Dai-ichi Life Insurance recorded an income of $218bn for insurance, an increase of 22% compared with the same six months last year. Nippon Life Insurance earned $209bn with a 4% increase over the same period.
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