AG Insurance has become the first Belgian provider to launch a structured unit-linked life insurance product (Tak 23) in a foreign currency. The eight-year AG Protect+ USD Dynamic Deep Value is denominated in US dollar and offers 135% of the rise in the Dynamic Deep Value Equity Europe index, subject to 24 months backend averaging. The product is issued via BNP Paribas Fortis Funding while BNP Paribas Fortis acts as the guarantor.
Structured products within Tak 23 insurance policies are aimed at investors who in today's volatile markets are primarily looking for capital protection, however, due to the current European Central Bank (ECB) policy, fixed income investments (which warrant the capital protection) offer extremely low interest rates. Moreover, the cost of capital return is weighing on the potential for yield, the insurer said.
The decision to offer a Tak 23 insurance in US dollar has two distinct advantages, according to Jan Bronselaer, team manager unit linked, market development savings & invest, AG Insurance. "The interest rates in the US are higher compared to those in the Eurozone which means we are able to offer a 100% capital protected product," he said. "At the same time, the difference in interest rates also increases the potential for the future return."
Although new for Tak 23 products, foreign currencies are often used in structured notes and funds in the Belgian market. Of the 224 structures with strike dates in 2016, 169 are denominated in euro; 42 in US dollar; 12 in Norwegian krone; and one in Swedish krona.
"Apart from capital protection and a potential return, clients who invest in structured products opt for a tax-friendly alternative compared to bank funds and also for the possibility of succession planning," said Bronselaer. "In that respect there was, until now, less need for structured products denominated in a foreign currency."
Bronselaer does not rule out that in future AG will launch products in currencies other than the dollar. "Operationally we are in a position to offer other currencies besides the dollar within the range of structured products."
AG Protect+ USD Dynamic Deep Value is linked to the performance of the Dynamic Deep Value Equity Europe (Price) Index. The index, which was developed by BNP Paribas together with the Belgian insurer, selects European stocks that offer an attractive valuation, stable earnings and adequate solvency as those that include traditional quantitative criteria, such as high dividend yield and low volatility.
"The loose monetary conditions in Europe [...] provide oxygen for the European economy and European companies," said Bronselaer. "At the same time, European listed companies are currently valued cheaper than US companies, which increases the potential for a return."
The SRP Belgium database lists 111 live structured products from AG Insurance worth a combined €2.8bn distributed via the BNPP Fortis channel; 30 live structured products (€398m) distributed via the BPost Bank channel; and 25 live structured products (€226m) distributed via the insurer's own brokerage channel.
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