UNIVERSAL life insurance plans have long been a core feature in wealthy clients' succession and wealth planning, thanks to a number of attributes - the ability to secure a high death benefit; availability of premium financing; liquidity; and an asset that in its traditional form is uncorrelated with market returns.
While most insurers report steady demand for large UL policies, at least one insurance brokerage, R.E. Lee International, reported record growth last year despite the pandemic. The firm's group chief executive Calvin Lo, the subject of our At the Helm profile, says growth surged by 25 per cent. The group typically places US$1 billion in premiums annually; this threshold was crossed by last September.
Enforced inactivity because of Covid-19 has prompted clients to re-examine their estate plans, says Mr Lo. ''Clients who had put off their planning called us. It has been a phenomenal, crazy year.''
Still, ultra-low interest rates are exerting pressure on traditional UL, which relies on a specified crediting rate for returns. China TaiPing Insurance, for instance, recently withdrew a plan.
The good news is that wealthy clients who are keen to use UL for their wealth and succession planning now have a range of options. In addition to traditional UL, clients can avail themselves of a variable UL, where they can park their own assets within an insurance plan, and indexed UL.
UL may be used in estate planning to facilitate liquidity, enlarge an estate, make a philanthropic bequest or even as key man insurance for businesses.
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Manulife chief executive Khoo Kah Siang notes that high-net-worth clients between the ages of 31 to 50 perceive UL not only as a wealth protection plan but also as a wealth creation and long-term financial planning solution.
''Another interesting trend we're seeing is that traditional UL is no longer the preferred UL product among highnet- worth customers. Their appetite has somewhat shifted to favour indexed UL, variable UL and whole life.''
Manulife offers all three types of UL.
Transamerica rolled out indexed UL this year and others such as GE are considering it.
A traditional UL posits a minimum and current crediting rate by which returns are accrued. The current crediting rate stands at around 3.5-3.9 per cent compared to over 4 per cent a few years ago, and the minimum crediting rate at 1.5-2 per cent.
In an indexed UL, net premiums go into two accounts. One is a ''fixed'' account which earns a minimum guaranteed crediting interest rate, which currently stands at 1.5-2 per cent.
A second ''index'' account gives exposure to equity indexes. Insurers will cap the returns that accrue to the index account at a certain level. At the same time, the downside is typically limited to zero. Clients keen on capital preservation might find this palatable as the policy stands a greater chance of higher returns than traditional UL, with a floor on the downside.
Lee Woon Shiu, DBS Private Bank's regional head of family office, wealth planning and insurance solutions, believes that despite the pressure of low interest rates, UL remains ''a stable, viable and predictable wealth planning tool''.
''As more and more clients start having multi-jurisdictional exposure arising from either the diverse profiles of their family members or the spectrum of global assets that they choose to invest in, this segment of clients will continue to see an increasing need for liquidity which mandates access to a solution akin to UL.''
''Compared to the early years when UL was deployed primarily as a generic wealth creation tool, we observe that more family business enterprises are exploring the use of UL in buy-sell and shareholder buy-back scenarios in limited partnerships, key man and employee benefit planning, as well as asset equalisation among clients with a high concentration of their wealth in real estate properties or family business enterprises which are keen to ensure an equitable distribution of their legacy.''
Great Eastern's Eddy Lim, head of propositions and portfolio management, says demand for (traditional) UL since the start of Covid-19 has fallen, likely due to falling bond yields. ''If the lower bond yields persist in the medium term, there is a chance that future crediting rates may be revised downwards.''
He says demand has shifted to participating whole life plans, particularly lifetime income plans which offer stable, long-term returns.
Sun Life, long known for UL products, recently opted to launch a whole life product where the minimum sum insured is US$1 million. The ''Future - S'' plan offers a guaranteed cash value of up to 85 per cent of premiums paid.
Belinda Au, Sun Life Singapore chief executive, says: ''There is a market for both UL and whole life. But I do see a shift of behaviour among clients looking for more whole life products ... If we have a UL now with a really low crediting rate, it's not saleable.''
Still, she is keen to expand the firm's offerings. ''We want to build a comprehensive and dynamic product suite in Singapore. We're looking at an indexed UL and variable UL products.''
AIA, which has a traditional UL called Platinum Legacy (IX), says clients are looking for innovative solutions that can provide a passive income stream and asset diversification as a buffer against market volatility.
Tay Jin Li, director, product management & proposition, says demand has been strong for its Platinum Wealth Elite, an investment-linked plan with a ''no lapse privilege'' which guarantees protection for at least the first 15 years regardless of fund performance. AIA is launching another ILP, the AIA Platinum Wealth Legacy, which claims to be the first ILP with long-term no-lapse guarantee.
The silver lining in today's low-rate environment is that premium financing has also become more attractive. Carlton Crabbe, chief executive of Capital for Life, says the ''idyllic'' environment for premium financing continues.
''Short-term rates are still benign with no significant movement in short-term US Libor rates. We expect this to continue for some time, despite excellent US growth rates. We are at multi-century lows for interest rates and this makes it very attractive to borrow money to finance life insurance policies.''
Capital for Life is based in Dubai and Guernsey and helps to deliver life insurance and premium financing solutions to high-net-worth clients in over 200 countries. It works with wealth managers, financial advisers and trust companies in Singapore.
Transamerica Life Bermuda's Jeremy Young, head of sales and distribution, points to the firm's 2019 study of succession planning which found that HNWIs in Asia are less prepared than their counterparts in other regions - 57 per cent said they have done nothing regarding estate planning and wealth transfer compared to 32 per cent in the West.
''With 85 per cent of Asian businesses being family owned, and with lots of succession planning issues coming over the hill, demand for life insurance and insurance-linked structures will continue to be strong.''
As for AXA Insurance, managing director Li Choo Kwek-Perroy says demand for variable UL has been consistent over the past couple of years, with signs of a pick-up this year. ''Despite the pandemic ... demand has not abated, as (Covid-19) has raised the importance of planning for contingencies and estate planning among the wealthy.''
She says given the market volatility and economic shocks, a variable UL may be more attractive for clients who want to retain control over the investment strategies of their assets, which are pledged to the insurer.
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