Commissions put pressure on: Report

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.”