Following the launch earlier this month of Invest Protect -a new single premium plan offering growth potential with downside protection, by Oman Insurance Company, in collaboration with Commerzbank Corporates & Markets and BlackRock, SRP spoke to Christopher Hughes, head of structured solutions at Commerzbank Corporates & Markets, about the product and how the bank is seeking to capitalise on increased demand around life insurance products in the Middle Eastern markets.
Invest Protect is a single premium insurance plan offered by Oman Insurance Company in UAE. The plan has a five year term, and it will pay a pre-defined percentage of the account value if there is a death during the term of the policy. The policy is linked to the performance of a capital protected certificate issued by Commerzbank which provides exposure to BlackRock's model portfolios comprising exchange-traded funds (ETFs).
The capital protection of the product incorporates a daily ratchet feature and is delivered via an embedded perpetual put option - not via CPPI, according to Hughes.
"Commerzbank has been able to embed perpetual put options in Ucits mutual funds for some time; however, we are now delivering this solution in a certificate format," says Hughes. "The main benefit of this protection strategy over CPPI is that it eliminates the possibility of cash-lock."
Choosing the right investments can be difficult especially in volatile markets and Oman Insurance Company is trying to simplify the task by offering a life insurance plan designed to accumulate wealth and minimize risk.
According to Hughes, the policy wrapper is an effective financial planning tool in the region as in the event of the policyholder's death, the proceeds from the life insurance cover associated with the policy are paid immediately to the policyholder's designated beneficiary, regardless of their country of residence.
"Invest Protect is not designed to deliver high returns but to deliver stable performance over the long run," says Hughes. "Investors using this kind of saving plan should not be expecting double-digit annual returns."
Invest Protect offers the simplicity to invest in a professionally managed model portfolio instead of having to choose from a list of hundreds of funds. The underlying model portfolio is composed of exchange traded funds (ETFs) diversified across sectors and asset classes to minimize fund management charges and volatility. The portfolio is managed by BlackRock, giving clients the assurance that their investment is looked after by one of the largest asset managers in the world.
ETFs are low cost, efficient building blocks both for active asset allocation and structured products, according to Hughes. "We are seeing an increasing demand from clients for the use of ETFs in structured products, particularly where a 3rd party is acting as an investment advisor or as an index sponsor to an ETF portfolio," says Hughes.
To make sure the investment is protected from adverse market fluctuations, the unit price of the underlying investment is assured to be at least 80% of the highest historical unit price.
"Investors today are increasingly looking for simple, low cost investments that have the potential to deliver on the upside, while limiting losses in the event of market downturns," says Hughes. "The downside protection feature in this product, coupled with insurance benefits from Oman Insurance Company and the underlying ETF-based model portfolios from BlackRock makes this an attractive investment proposition."
Commerzbank has been talking to insurance companies and other players in the region to bring to market a number of similar transactions in the region as the German bank continues to look for opportunities and provide products that will meet the demands of investors at different levels.
According to Hughes, some of the markets in the Gulf Cooperation Council (GCC) region are relatively small but changes in social demographics are opening up new opportunities with a growing middle class demanding more saving, investment products, life insurance and pension products, and structured products can respond to that demand.
"At a corporate level there is also demand for structured products as they can be used to manage liabilities," says Hughes.
Commenting on the partnership, Andrew Brody, executive vice president life at Oman Insurance Company, said the combination of the strength of the largest local insurance company in the UAE with global expertise on asset management and investment solutions will help to bring 'innovative life and savings products' to the UAE market.
Rakesh Sudhakaran, head of bancassurance at OIC said banks and IFAs would play a key role in distributing the product.
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