Pru Life eyes bancassurance

MANILA, Philippines - Pru Life Insurance Corp. of UK (Pru Life UK), the Philippine subsidiary of British life insurer Prudential plc, says it would not give up part of the firm to a bank just so it could join the lucrative bancassurance business. Instead, it would set up a separate insurance firm, 5% of which would be owned by a bank, that would serve as its distribution channel, the firm’s top officials said Thursday. Bancassurance, or the selling of life insurance products through banks, is estimated to contribute at least half of the total premiums generated by the domestic insurance industry from only a quarter five years ago. In a report on the Philippine banking industry released in June, Dublin-based Research and Markets Ltd. forecast bancassurance to account for 65% of the total insurance sales by 2011. But while already flourishing in most Asian markets, the local bancassurance business has yet to hurdle regulations that stipulate that cross-selling is limited to banks that have at least a 5% stake in its affiliate insurance firm. "We don’t have any intention of banks buying into 5% of Pru Life," Antonio G. de Rosas, senior vice president and chief financial officer at Pru Life UK, told BusinessWorld, responding to market speculation that a top tier bank has offered to purchase part of the insurer’s shares. "We’ll set up another insurance company where we will have a 95% stake," he said. The 100% British-owned insurer is in talks with local and offshore banks that would own the new insurance company’s remaining 5% stock. Pru Life UK has yet to name the new insurance firm but a deal should be hammered out before the year ends, Mr. de Rosas said. Pru Life UK has an existing arrangement with Citibank that allows the latter to offer insurance protection to its credit card customers. Pru Life UK has a 52-strong branch network in the country and nearly 2,000 agents. It reported first year premiums of P1.25 billion in the first semester, down by 12% from P1.42 billion during the same period a year ago. The insurer traced the decline to waning appetite for single premium products — insurance policies that are fully paid in a single period and are heavily invested in equities and bonds — given the prevailing market volatility. Traditional pay products, or so-called regular premiums that are mainly protection-oriented products, however, continue to provide growth momentum, Mr. de Rosas said. "Single premiums are mainly financial market-driven. When markets are not good, regular premium products become our bread and butter," he pointed out. To corner customers seeking investments that are shielded from market fluctuations and insurance protection, Pru Life has begun offering the PruLink Capital Secured Plus. "We want to ensure secured returns to our customers. That’s the need under current market conditions," Pru Life UK President and Chief Executive Officer Nishit P. Majmudar Thursday told a briefing. Pru Life UK is the first in the country to offer a peso-denominated variable life product that is capital-secured. The new variable life product — invested in Philippine sovereign bonds (ROPs) maturing on February 15, 2013- pays an investment return of 21% when it falls due. The insurance-cum-investment peso-denominated product is covered by currency forwards to hedge investors against fluctuations in the exchange rate. The weakening peso, which has shed more than 11% so far this year, is expected to erode the returns of investors in ROPs. - BusinessWorld