Recently, the circle has been discussing the issue of "whether the increase in longevity will disappear", and Caizi also wrote a manuscript last week.
But it's not particularly thorough.
A few days ago, I discussed this issue with several senior people in the circle, including an actuary.
I felt something again.
Today, I would like to share my views with you again.
01
Life Enhancement is very much unlike insurance, or rather it is an "alternative".
Its essence is more like a long-term deposit.
And it is a wealth management product that takes into account security, high returns, and liquidity are very attractive.
Generally, the payback period is about 5-10 years, and the long-term yield is close to 3%.
Note that it's compound interest.
Not only does it lock in a long-term interest rate, but it also allows customers to surrender and withdraw the policy flexibly, and can surrender the policy after 5 years.
There is a bit of an impossibility triangle that goes against finance......
Of course, you can also contradict me.
Its "liquidity" is not so good, it has been locked for so many years......
Hold your horses.
Understand that all discussions in this world are relative.
The liquidity of the increased life (which you can also understand as flexibility), relative to its high yield, security, and length of lock-up time.
It's already very, very good.
That's why it's been selling so hot over the years.
In 2022 alone, the increased life will sell 360 billion yuan, which is the most sold among all types of insurance products that year.
No one is blind.
In recent years, many people have been increasing the amount of "long-term deposits" to buy and grab the dividends of this special stage of regulatory release. Insurance sales also sell it as a "long-term deposit".
But one thing is true:
"What is too beautiful is often poisonous."
02
As we all know, it is very difficult for us to buy long-term bank deposits that are more than 5 years old.
Even this year,
I can't buy a large amount of bank deposits that are more than 3 years old.
Why?
The cost of making a wealth management product that locks in long-term interest rates is very high.
The world is changing, and over time, many things become powerless.
It's like the promise of "eternity" made in love is often disappointed in the end.
Because the essence of increased life is "long-term deposit", the long-term operating pressure it brings to insurance companies is still very large.
Insurers must find an equally long-term, risk-free, high-yield investment to recoup that money.
Obviously, such an investment method is very difficult to find, especially in the current economic environment.
Duration Treasuries may be a good option.
But there are also "loopholes", one is that the yield on duration Treasury bonds is lower than the increase in life.
The yield on the 30-year Treasury bond issued some time ago was at 2.57%. The 50-year Treasury yielded at 2.53%.
The other is the problem of "mismatch".
That is, the maturity time of the increased life may be 15 years, and the time of the treasury bonds that can be purchased may be 30 years. Or the time to increase the life expectancy is 30 years, and the time to buy treasury bonds is 15 years.
The most important problem of increasing life expectancy is its liquidity.
It not only allows customers to flexibly surrender and withdraw the policy, but also allows the policy to be surrendered after 5 years.
This leads to,
Whether market interest rates are rising or falling, insurance companies are under tremendous pressure and are in a dilemma.
When the interest rate rises, and the deposit interest rate exceeds the increase in life,
From a sales point of view, the increase in longevity will not be sold.
But at the same time, there is a more difficult problem, because the liquidity is good, and some people who hold the increased life may surrender the policy.
It's a lot like a run on a bank.
You have to come up with enough cash to deal with it, and no financial institution will let the money just sit on the books. When a bunch of people come to withdraw money, they have to sell their assets. Interest rates are rising, and there must be a loss from selling assets......
Of course, the downward trend in interest rates is also a huge problem.
If the insurance company has sold a lot of high-yield life enhancements before, and the high-quality assets that can be invested cannot keep up, and cannot cover the interest rates of these policies, it will cause interest rate losses.
"Spread loss" is a technical term in finance, simply put, it means that the spread has lost money.
In the 90s, because of the collapse of market interest rates, it brought huge operating pressure to insurance companies at that time.
Therefore, countries and regions with mature insurance generally do not increase life expectancy now.
Insurance in the United States, Singapore, and Hong Kong, which has become popular in the past two years, are mainly based on "low guarantee, high dividend" participating insurance.
There is almost no trace of increasing longevity.
For example, savings insurance in Hong Kong has always been dominated by products with low guarantees and high dividends.
The guaranteed return is concentrated between 0.5% and 1%, plus dividends, and only under the premise that the dividend achievement rate has been maintained at 100%, it may reach 6%-7% as advertised.
In the final analysis, the pressure of interest rate fluctuations, this ball is kicked to protect the people.
03
Obviously, such an increase in longevity, the regulator will not really like it.
There is a high probability that it is not allowed to exist for a long time.
So the question is, why has it been allowed to become popular in China in recent years?
The answer is that the market has been cutting interest rates for several years.
Around 2021, most insurance products will not be sold because interest rates are cut too quickly.
So, I put a little "water" in it.
It has produced a "super hit" that has almost beaten all other risk-free wealth management products in the market.
As a result, everyone also saw that the increased life was sold very well.
However, regulation is trembling and has been making "patches" behind the scenes.
In the early days, there was no restriction on the surrender of the policy, and with the recent years, the increase in life has gradually become the mainstream of the market.
The regulator has also successively made adjustments to the increased life products, restricting the flexibility of the increased life insurance reduction and the behavior of "long-term insurance and short-term insurance".
For example, many life enhancement products can only be partially surrendered after 5 years after the policy has been in force, and the amount of partial surrender is also limited, generally not exceeding 20%.
Moreover, the base of this 20% varies from product to product, and many of them do not exceed 20% of the basic sum insured at the time of effect.
There is also the forced suspension of sales of products with a predetermined interest rate of 3.5% in July last year;
This year, the policy of integrating newspapers and banks will be implemented......
But there are still gaps.
For example, there is no special restriction on full surrender, but early surrender will result in a loss of cash income.
There is also a limit of 20% of the insurance reduction is not too high, and it can be avoided to a certain extent, such as buying multiple policies, which can basically meet most of your financial needs.
In fact, if the patch continues, it will not increase the longevity......
Therefore, if there is a major regulatory adjustment in the future, its existence or non-existence is no longer important, because the product is deformed.
All in all, based on the current environment and predictions for the future.
The future of longevity is a dead end.
It reminds me of the recent Lujiazui Financial Conference.
Li Yunze of the State Administration of Financial Supervision mentioned insurance 76 times in his speech.
So obviously,
Today is likely to be the last year of the "water dividend" of the increase in life expectancy.
After reading my article, everyone who understands it should understand.
Buy it and cherish it.