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    Improved Market Conditions Expected to Boost Life Insurers’ 2017 Reserve Ratios

    Solid equity market returns coupled with stable macroeconomic outlook are expected to help Singaporean life insurance companies further improve their reserve ratio in 2017. The reserve ratio is an indicator of life insurers’ ability to pay out non-guaranteed benefits in the future. It is calculated by comparing the reserve buffer of an insurance company with its total assets. Higher the reserve ratio, the more capable an insurance company is of paying non-guaranteed benefits.

    According to a media report, life insurance companies in Singapore gained from positive market performance in 2016, as most of the major companies were able to pay out some non-guaranteed bonuses, at least the ones that are linked to participating or Par products. It added that the insurance companies are expecting the markets to end 2017 as well on a positive note, which will support pay out of such benefits.

    Apart from paying the guaranteed sum assured, participating insurance policies also allow policyholders to share profits from the participating fund. That profit is usually paid as bonus or dividend and is referred to as “non-guaranteed benefit”. Further, the bonus can be Reversionary, which is regularly added to the sum assured, or it can be Terminal, which is added when the policy is terminated.

    As per the report, the number of insurance companies in Singapore that managed to keep their reserve buffers at above one-third of their par assets slipped to two in 2016 from three in 2015. Prudential continued to lead with reserve ratio of around 42% in 2016.

    Analysts believe that global stock markets will continue to deliver positive returns in 2018 on back of various factors such as improved global economic performance, stable Chinese economy, better liquidity, and much more.

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