tmmonline.nz  |   landlords.co.nz        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Friday, March 29th, 10:40AM

Insurance

rss
Latest Headlines

Commissions put pressure on: Report

It is very capital intensive for insurers to run an adviser distribution channel in New Zealand because of the high upfront commission structure, a new AM Best report says.

Friday, August 7th 2015, 6:00AM

The report from the rating agency, says commissions have a continuing role driving distribution of life insurance products.

It highlights high upfront commissions of 170% to more than 200% of premiums followed by a trail commission of 7% to 10%.  “While providing intermediaries with strong incentives to sell the products, this remuneration structure has created a number of ongoing financial challenges to the life insurers relatively reliant on the agent/adviser channel.”

AM Best said the adviser sector was holding a moderate level of excess capital.

“Despite a composite solvency ratio generally lower than other sector composites, excess capital is deemed adequate to support insurance and investment risks. For every $100 of net premiums, the agent/adviser sector held around $35-$40 of excess capital. AM Best believes this represents a comfortable margin for the insurance risks involved. For every $100 of non-linked investments, the agent/adviser sector held about $15 to $20 of excess capital above the minimum regulatory capital requirement, also representing a comfortable margin for the investment risks involved.”

The adviser sector reported an average return on net premium of about 24%, and a return on capital of 10%. AM Best said that was associated with a lower net premium leverage ratio resulting from more use of reinsurance.

Commission and other expenses amounted to as much as 100% of net premium revenue.

Net expense ratio was significantly higher than gross, because the agent/adviser sector generally ceded a large portion of gross premiums to the reinsurers, leaving a smaller premium base retained to spread expenditures.

The report notes that with such a high net expense ratio, an important implication is that ongoing profitability tends to rely significantly on persistency experience.

“The agent/adviser sector's future operating performance will continue to be influenced by insurance market risks that are generally common to all life insurers operating in New Zealand. Over a longer term, there is some uncertainty as to whether the expected volume and mix of future new business could remain unchanged.”

It assigned the sector a stable outlook.

Tags: Commission

« Commission, replacement not an issue, summit hearsCall to back health insurance bill »

Special Offers

Comments from our readers

No comments yet

Sign In to add your comment

 

print

Printable version  

print

Email to a friend
Insurance Briefs

Partners helps fund depression recovery centre
New Whakamātūtū Wellington Depression Recovery Centre gets financial boost from Partners Life.

AIA adds cover for prophylactic surgery following cancer
AIA makes changes to policies and adds preventative surgery for several types of cancer.

Chubb appoints David Morrow as Country President for New Zealand
Chubb has appointed David Morrow as Country President for New Zealand.

nib adds specialist skills to its board
Two new board appointments at health insurer nib add new perspectives, chairman says.

News Bites
Latest Comments
Subscribe Now

Cover Notes - Specific news aimed at risk advisers

Previous News
Most Commented On
About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox  |  Disclaimer
 
Site by Web Developer and eyelovedesign.com
x