The increase in the amounts paid by insurers for early redemption has to do entirely with the spectacular leap which occurred between April and June, considering that in the previous quarters, including in the first three months of 2011, the value of redeemed policies had been on a slightly downward trend.
In the second quarter alone, insurers paid RON143 million for policies redeemed early by clients, 40% more than in the similar period of last year. But the situation has changed in the last few months, say insurers, despite the fact that economic uncertainties linger.
“The number of ING Asigurari clients who had to cancel their policy because they could no longer afford to pay it fell by around 45% in September against the similar period of last year,” said Cornelia Coman, general manager of ING Asigurari, the largest company on the life insurance market.
For now there are no aggregated data on the value of redemptions in the third quarter.
Unit-linked policies are no longer the main target
Growth in the second quarter is owed largely to amounts that clients withdrew from traditional insurance accounts (which guarantee the invested capital or even a minimum yield above inflation), after in the past unit-linked policies had generated the biggest problems to insurers.
So, early redemption of traditional policies totaled RON83 million between April and June, with overall amounts redeemed accounting for more than two thirds. A cumulated RON59 million were withdrawn from unit-linked accounts (in the case of which the full investment risk was taken over by the client).
The level of redeemed policies continues to be high considering that they boomed during the times of crisis and reached a record-high RON425 million (EUR97.6 million) in 2009.
For instance, the volume of policies redeemed early was around RON190 million for the entire 2007, with the spectacular growth recorded in times of crisis owing to the population’s lower disposable income and to a decline in earnings made by insurers. The yields recorded for unit-linked policies fell abruptly in 2009 and early 2010 amid capital market turmoil, but they were partly recouped in the first half of this year, although the value of the accounts did not return to pre-crisis levels in most cases.
Expectations of an improvement
Companies on the market expect the situation to improve over the next few months, as the economy starts to recover.
“I think as the economy starts to be revived and incomes start to grow, people will be more careful about the need for financial protection and to make savings. The number of clients who have resumed a contract rose by 24% in the third quarter against the similar period of last year,” Coman said. (EUR1=RON4.354)
(English version by Daniela Stoican)