EIOPA releases 2020 report on costs and past performance of IBIPs and PPPs
The European Insurance and Occupations Pensions Authority (EIOPA) published its second report on cost and past performance of insurance-based investments products (IBIPs) and personal pension products (PPPs) in the European Union.
The report identifies the impact of market volatility on returns for different product types and provides an analysis of costs for 2018 and of past performance for the period 2014-2018. The report also makes a comparison with the analysis in the 2019 edition of the report.
Key findings – IBIPS:
- The report is based on an analysis of the performance of 530 IBIPs offered by more than 120 insurance undertakings, amounting to 57% of life insurance technical provisions and for over 54% of with profits
and index-linked and unit-linked insurance gross written premiums.
- The report concludes that unit-linked products can offer high returns but also pose risks for consumers during periods of poor market returns and finds a significant range in results for different national markets. In particular, EIOPA find that:
- Unit-linked products have performed worse than profit participation products.
- Highly negative average net returns in 2018 can be observed for both unit-linked insurance products (-7%) and hybrid insurance products (-2%).
- Profit participation products are less expensive than unit-linked, even though the gap in costs appears to be reducing.
- Higher risk classes for both unit-linked and profit participation products are found to have a higher variability of net returns. For the reporting period (2014 – 2018), however, they experienced higher net returns, including when their higher costs are considered.
- Ongoing costs continue to be the most prominent cost component, representing 80% of total unit-linked costs and 70% of total costs of profit participation products.
Key findings – Personal Pension Products (PPPs)
- The second iteration of the report analyses the performance and returns of 110 PPPs accounting for 940,000 contracts and € 48.2 billion in GWP.
- This improved coverage allows EIOPA to draw some conclusions, although EIOPA highlights that these should be interpreted cautiously given the important differences between markets:
- PPP-UL have lower net returns and higher costs for higher risk classes while for PPP-PP net returns and costs are higher for products belonging to the riskiest categories.
- PPP-UL, on average, offer a lower return (0.7%) than PPP-PP (1.4%) over the period 2014-2018.
- In 2018, in RIY at RHP terms, costs for PPP-PP (1.8%) were lower than costs PPP-UL (2.0%).
- Ongoing costs represent the most prominent cost category for both PPP-UL and PPP-PP.
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Next steps
- • EIOPA intends to further develop the methodology of this periodical report, aiming to increase product and market coverage (including occupational pensions), collect more granular and standardised data, and standardise cost definitions.
- • The third report is expected in 2021.