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Fitch: Commission-Free Sales Positive for Singapore Insurers
August 4, 2014 / 1:06 AM / 3 years ago

Fitch: Commission-Free Sales Positive for Singapore Insurers

(The following statement was released by the rating agency) SINGAPORE, August 03 (Fitch) The decision by the Monetary Authority of Singapore (MAS) to launch a commission-free life insurance sales programme is credit positive for the Singapore life insurance sector, says Fitch Ratings. The decision is likely to boost the overall penetration rate of the life sector while also prompting a re-evaluation of strategies on distribution channels, which may enhance productivity. Beginning in 2015, Singaporean retail insurance companies will be allowed to sell term and whole life products directly to consumers without the need for commission-based insurance agents. The direct sales channel will be restricted to a maximum insured sum of SGD400,000 per person per insurer, which includes a sub-limit of SGD200,000 for whole life products. The new regulation will increase the accessibility of life insurance to low- and middle-income segments by eliminating commission costs and reducing the price of direct-sale products. This in turn should boost the overall penetration rate of the life sector in Singapore, which trails that of other high-income Asian economies. Based on statistics from Swiss Re Sigma, life premiums as a percentage of GDP in Singapore amounted to just 4.4% in 2013 - behind Taiwan (14.5%), Hong Kong (11.7%), Japan (8.8%) and South Korea (7.5%). Beyond the positive headline revenue impact, the new direct-sales channel will prompt Singapore life insurers to review their distribution channel strategies. This may prompt companies to refocus their clientele base and shift the agent-channel toward more complex products and larger assured sums - and away from segments which are likely to only utilise the commission-free products. All Singapore insurers will be required to sell commission-free products, so Fitch expects competition for these products to be intense. As such, there could be an impact on profitability associated with a drop in premium rates. The potential impact on profitability will vary from company to company, and is likely to depend on the extent to which individual insurers choose to target a build-out of market share in the new direct sales segment. It is, however, premature to assess this in full. Contacts: Siew Wai Wan Senior Director Insurance +65 6796 7217 Fitch Ratings Singapore Pte Ltd. #35-05, Suntec Tower 4 6 Temasek Boulevard Singapore, 038986 Justin Patrie Senior Director +65 6796 7232 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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