Although the investment-linked product (ILP) business is stagnating in Singapore and Hong Kong, other Asian markets such as Indonesia, China, Taiwan, and Thailand are offering better prospects, according to a new report by Cerulli Associates.
Indonesia has the highest growth potential among the four countries stated, with high growth potential in its investment-linked product market and various reforms are likely to boost fund distribution through the insurance channels, the report states.
According to fund managers Cerulli spoke to, the growth momentum remains strong even though the first ILPs were launched more than a decade ago.
“Banks and insurance agents are pushing ILPs more, as compared to mutual funds, because of higher fee incentives,” the Cerulli report stated. “Banks typically have exclusive arrangements with insurance firms to sell their products, but there are no such partnerships with asset managers to distribute mutual funds.”
However, if the country’s regulator, Financial Services Authority (OJK) decides to scrap upfront fees and exclusivity in bancassurance partnerships, Cerulli warns that growth prospects might be more limited.
At the same time, OJK has raised the cap on overseas Shariah investments from 15% to at least 51% since November 2015. Cerulli notes that this may present an opportunity for fund managers to offer foreign-invested Shariah-compliant funds on ILP platforms, if regulators allow it.
As reported, Indonesia has seen a welcome boost of cash thanks to its successful tax amnesty scheme. As a result there is likely to be a knock-on affect to the country’s economy as previously unpaid taxes are returned without penalties to the Indonesian government.
Indonesia’s tax amnesty programme, which runs until the end of next March, has been declared a success, based on the first two-and-a-bit months in operation, various news websites and other organisations are reporting.
In spite of a slow start more than US$263bn has already been declared and more than 347,000 have signed up to receive substantial tax discounts, according to figures released at the end of September.
The amnesty opened on 18 July and will run until the end of March 2017.
Managers Cerulli surveyed for the Asset Management in Southeast Asia 2016 report ranked insurers as the channel they would increase their use of the most in the coming three years.
Various reforms introduced in the past few years are likely to help boost fund distribution through this channel. Banks will also continue to push bancassurance sales, which significantly involve unit-linked products, the report concluded.