Generali accelerates pivot to ‘capital light’ products

Tilt to unit-linked products helps relieve capital burden

Italian insurance giant Generali exceeded its ambition to tilt its life business away from capital intensive policies in 2018, increasing the share of its overall life reserves attached to non-guaranteed products by 8.6 percentage points. 

The share of the group's total life reserves linked to so-called 'capital light' unit-linked and zero-guarantee products hit 57.1% at end-2018, up from 51.7% in the year prior and 47.2% in 2015. Generali had targeted a minimum six percentage point increase to 53.2% by end-2018.

This rebalancing was achieved by strong net inflows to unit-linked products over the last three years. Of net inflows totalling €11.4 billion in 2018, 58% went to 'capital light' unit-linked products, 11% to traditional savings products and 31% to protection policies.

The unit-linked share was slightly lower than the 60% reported for 2017, but higher than the 44% posted in 2016 and the 48% in 2015.

The sale of Generali Leben, part of the group's German operations, which carried a host of high-guarantee products, also helped to drive the rebalancing.

What is it?

Unit-linked products are hybrid insurance and investment products, where part of the paid premium is used to finance insurance coverage and part is invested in financial assets that generate market-based returns. 

Guaranteed products, in contrast, promise policyholders a set rate of return on the invested portion of their premium.

Why it matters

Unit-linked products are labelled 'capital light' by Generali because the investment risk associated with them is shouldered by the policyholder rather than the insurer. This means Generali does not need to hold own-funds against interest rate, market or other financial risks for these products, freeing up capital for deployment elsewhere.

Increasing the share of in-force business linked to 'capital light' products, therefore, can help to improve an insurer's Solvency II ratio by lowering the financial risk component of its solvency capital requirement (SCR), which forms the denominator of the ratio.

Generali did post a higher Solvency II ratio at end-2018, of 216%, compared with 207% a year prior. However, the SCR for financial risk climbed to €13.4 billion from €13.2 billion. While this was an increase, it was a far smaller one than the €2.1 billion recorded between 2016 and 2017, suggesting the pivot to 'capital light' is gradually taking effect.

Get in touch

Diversification has helped to rebalance Generali's portfolio. What lessons can rival insurers take from its actions? Let us know by emailing, sending a tweet to @LouieWoodall or messaging on LinkedIn.

Catch the latest updates from Quantum by following @RiskQuantum.

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