Market performance and development prospects of unit-linked insurance plans (ULIPs) in Russia

Размещено на http://www.allbest.ru/

FEDERAL STATE AUTONOMOUS

EDUCATIONAL INSTITUTION OF HIGHER EDUCATION

NATIONAL RESEARCH UNIVERSITY

«HIGHER SCHOOL OF ECONOMICS»

Saint Petersburg School of Economics and Management

Department of Finance

Bachelor's thesis

Market performance and development prospects of unit-linked insurance plans (ULIPs) in Russia

38.03.01 «Economics» The programme «Economics»

The student of the group No. BEC 141 Ziazina Vera Sergeevna

Reviewer PhD, Associate Professor Deputy Dean of the Faculty of Economics of the PFUR E.M. Grigoryeva

Advisor PhD, Associate Professor Deputy Head of the Department of Finance, J.A. Tarasova

Saint Petersburg 2018



Abstract

Today unit-linked insurance plans (ULIPs) are one of the most popular tools in the insurance and investment services market. Such plans are widely used by people in North and South America, Europe and Asia. The Russian market of ULIPs is rather new and considered to have been dynamically developing in the recent years. Increasing interest in the investment insurance has heightened the need to study ULIPs.

Even though foreign unit-linked insurance markets and the products offered there have been thoroughly researched, there are a lot of gaps in studies of ULIPs in Russia. The works that do exist are too general and do not allow one to see the big picture of the field. Hence, the author would like to fill in the gaps. Therefore, the aim of the paper is a deep research of major terms of ULIPs as well as market performance of ULIP funds, offered by Russian insurers, and revealing of opportunities for the development of ULIPs in the Russian insurance market.

The study is based on data from different resources, such as specialized websites, websites of life insurance organizations, newspapers, magazines, as well as information received through direct contacts with representatives of the insurance companies. Information about the ULIPs of 8 Russian life insurance companies in the period from 2009 to 2016 was collected for the research.

Since there are no studies which have explored unit-linked insurance products in Russia, this research fills this gap and gives a broad analysis of Russian ULIPs. Moreover, the study outcomes can be used in future works in this field. Suggestions about existing problems in the field and their solutions are likely to be useful for market players and public authorities on their way towards developing unit-linked life insurance in Russia.



Introduction

Unit-linked life insurance or "the English method of investment" was invented in England in the 60s of the last century by management companies investing in mutual funds and received further development in European insurance companies. Today unit-linked insurance schemes are one of the most popular tools in the insurance and investment services markets, as it represents a symbiosis of these two areas. These plans are intensively used by people in North and South America, Europe and Asia, in general, almost in the entire civilized world.

Nowadays the insurance market in Russia is considered as one of the most profitable and intensively developing field of economy. The largest growth in this industry is showed by unit-linked insurance plans (ULIPs) which were introduced in Russia in the beginning of 2000s. They provided more than 75% of absolute increase in premiums in 2016 and are predicted to have a huge potential in the nearest future. Even though this type of life insurance is rather new in the Russian market, more and more life insurance companies become interested in unit-linked insurance and start to offer ULIPs to their clients. According to senior researchers of the field such as Mitram, D. & Khan, P.C. (2012), Melville, G. L. (1970), Ekern, S. & Persson. S. (1996), ULIPs are hybrid instruments of insurance and investments. It consists of “protection element”, which is a guaranteed sum, paid to a policyholder or his legal successors, and “investment component”, which is invested in different financial instruments, according to the investment strategy of a customer, and implies a potentially high additional income.

The increasing interest in unit-linked insurance has heightened the need to study ULIPs to provide potential customers with wide and detailed information about this kind of insurance services in order to make unit-linked insurance schemes transparent for private investors.

The main goal of this paper is to research the features of unit-linked insurance plans, analyze ULIP funds market performance and determine possible opportunities for future development of ULIPs in the Russian life insurance market by:

· reviewing Russian and foreign scientific studies, dedicated to a ULIP vehicle and its effectiveness and investment risk;

· analyzing major features of selected Russian ULIPs;

· evaluating the risk and the profitability of Russian ULIP funds;

· revealing possible directions for future growth of the market.

Even though foreign unit-linked insurance markets and products are thoroughly studied, there are a lot of gaps in research of ULIPs in Russia. Existing works are rather general and do not provide the information about features and economical effectiveness of Russian ULIPs. Thus, detailed examination of Russian unit-linked insurance schemes is the niche of this research.

This work enables both researchers and private investors to get better understanding of ULIPs on offer in Russia: to explore the main characteristics of ULIP contracts, the profitability and volatility of ULIP funds and how all these indicators vary among plans of different insurance organizations. Moreover, basing on acquired findings about products of the unit-linked insurance market in Russia, some suggestions about weak points of ULIPs were made which are likely to be useful and can be taken into account when considering ways of subsequent development in this field in Russia. Additionally, the results of this work can be used in future researches in the field.

Literature overview

Major authors of the field such as Melville, G. L. (1970), Mitra, D. & Khan, P.C. (2012) defined two groups of life insurance plans:

1. Traditional plans.

2. Unit-linked insurance plans.

Traditional plans are the oldest ones, consisting of Whole Life Plans, Term Insurance Plans, Endowment Plans, Protection Plans, Child Plans, Health Plans and Pension Plans. They include a guaranteed protection part that will be paid out and a saving component, which will be invested in low risky assets. After the maturity of the plan, the policyowner will receive a guaranteed sum plus gain from investments if it takes place. In that case, the investment risk lies on the insurer and the client does not have the opportunity to control an investment part of the policy. Insurance companies choose the investment avenues and allocating the money in different assets according to their inner reasons. Therefore, the profitability of that investments is low as a rule, as insurers who borne the investment risk are low risk appetite.

ULIPs also provide insurance guarantees as well as an investment part. However, the main difference of ULIPs and traditional plans is the structure of saving or investment components. Under unit-linked insurance policies, clients are considered to choose by themselves where to invest their money and create their individual portfolio. They can invest either in reliable bonds with low, but guaranteed return or in high-risk assets with the great deal of profit or even in hybrid instruments. These policies enable clients to receive a potentially high income. Customers who have ULIPs can change investment strategies according to their own reasons and appetites, bypassing downturns and earning high revenues of the market.

Therefore, unit-linked insurance plans provide both insurance and investment parts. A protection part is designed to ensure 100% guaranteed return of one's insurance premium no matter whether the policyholder died before the expiring date of the life insurance contract or survive until the contact maturity date. An investment (saving) component is to be split in units, which are represented by the value that it has attained called as Net Asset Value, and placed on an individual account of each client. These units are invested in different assets, according to the investment strategy of the policyowner and his investment purposes and a strategy. The income, gained from allocating these units in profitable assets, will also be credited in a unit form and is to be received by the client account (Melville, G.L.,1970, Gavriletea, M., 2009).

According to Melville, G.L. (1970), in ULIP instruments completely the new method of surplus distribution is introduced. There it is suggested to life insurance companies to limit their services only to a protection part, costs, connected with it, and investment management. It means that policyholders now receive all investment risks directly. The client is responsible for his investments by himself; he controls it through his personal account and get the income directly to it. In that case the insurer does not have the access to this account, but it plays the role of an investment advisor and provides its clients with the range of funds to choose for allocating their capital.

However, researchers Finogenova, J.Y (2011) and Ofutin, A. (2009) in their works reported this is not correct for Russian ULIPs. The Russian legislation does not yet provide an opportunity for insurers to offer customers unit-linked insurance plans in their pure form. It is legally prohibited to transfer the investment risk from insurance organizations to individuals, so all ULIPs, offered by Russian life insurance companies, differ from foreign ones from this point. Since in Russia insurers are responsible for policyholders' investments, they apply a participation coefficient for an investment part of the scheme and an investment income is paid by the insurance company to the client according to it.

Khurana, A. & Goyal, K. (2010) examined Indian life insurance plans, its market performance and general characteristics of policies. The authors identified an abundant supply of not only ULIPs, but also traditional plans in the Indian market. All Indian life insurers offer both ULIPs and traditional policies to customers in order to conquer an extensive and do not fall behind. Despite successful market performance, there are some problems. The desire of Indian insurance companies to provide their clients with the diversity of products caused an enormous choice, available on the market, which confuses customers in their decisions what plans to choose. As a result, because of this oversupply, the client cannot identify the plan which will be both rather profitable and offered on favorable conditions and becomes dissatisfied with the product. Hence, the authors in their study compared the most popular ULIPs, offered in the Indian life insurance market, and chose the best one from each point of its key features such as an entry age, a policy duration, fund options, different types of charges and market performance of ULIP funds.

Moreover, the following policy features of Indian ULIPs were identified (Table 1).

Table 1. Major characteristics of Indian ULIPs.

Entry age	Duration (years)	Number of funds
Min	Max	Minimal	Maximal	Minimal	Maximal
10	85	10	75	6	10

The researchers also suggested some points which should be considered when making decision about investing in ULIPs, for instance:

· the balance between investment and insurance parts should be conserved to have both an adequate protection and a real chance to earn the premium from investments;

· long-term policies are the most profitable ones;

· an examination of ULIP major characteristics helps to reach one's insurance and investment goals.

Akula, R. & Kanchu, T. (2011) studied ULIPs and traditional plans in India and its development overtime. It was found the growth rate of ULIPs overtook traditional plans growth rate during 2007-2009. However, the supply of traditional plans in five selected for the study life insurance companies was much bigger in comparison with unit-linked insurance plans supply in these years. Akula, R. & Kanchu, T. (2011) in their study highlighted the risk of allocation money in ULIPs, as the product is affected by market changes, and advised to choose long-term ULIPs to mitigate the negative downturns of economy which was also suggested by Khurana, A. et al (2010).

Mitra, D. & Khan, P.C. (2012) discussed and compared performance of ULIPs and traditional planes in India as well. Basing on the growth of collected premiums and policies number, they figured out that public sector insurance company LICI is focused on traditional plans rather than on ULIPs and private insurers do their business majorly in ULIPs. However, the biggest growth was shown by ULIPs as compared to the traditional plans. This fact was also found by Akula, R. & Kanchu, T. (2011). The authors concluded ULIPs are the best option for investors who would like to transfer their risk and maximize the income from investments. This conclusion was made, basing on the growth rate of premiums and plans' number; however, there is no information about profitability and risk of either ULIP funds or traditional plans' funds. Thus, this suggestion was proven with not-full weak arguments. investment market russian

Jodish, D. (2014) also researched the performance of Indian traditional and unit-linked insurance plans. What distinguishes his work from the previous ones is a usage of different quantitative methods when analyzing ULIP funds market performance. Jodish, D. (2014) employed Scheme Return and Sharpe ratio to evaluate the profitability and volatility of ULIP funds and statistic tools which enabled him to make the strongly reasoned conclusion about the plans that shown the best performance. According to his findings, from the point of overall market performance there is no difference between investing either in ULIPs or traditional schemes, as both types of plans are affected by market fluctuations equally. Jodish, D. (2014) also identified that the age of the insurance company does reflect the returns, generated by its plans. It means that schemes' returns of old and new insurers differ. Samajpati, U. (2012) analyzed effectiveness of three ULIPs, offered by Indian life insurance companies. The author utilized more diverse block of coefficients to measure ULIPs performance such as Rate of Return, Standard Deviation, beta coefficient, Sharpe, Treynor and Jensen ratios. Thus, the author received broad information about the profitability and risk of selected ULIP funds, could compare the results, obtained with the help of different techniques, and make relevant and reasonable outcomes. The researcher resumed that all chosen plans overperformed the market during considered period from 2009 to 2011.

Gavriletea, M. (2009) researched the performance of 5 unit-linked insurance plans with 6-8 ULIP funds available under each plan. All ULIPs were offered by 5 insurers in Romanian market. Qualitative analysis and description of ULIP funds were conducted. Funds' performance was examined by the author and some findings were introduced:

· performance of the ULIP funds are connected with market fluctuations;

· for policyholders it is significant to control their investments and redirect money from less profitable funds to more successful ones;

· it is rational to allocate money in low risky funds during depreciation trends in the international markets and redirect it to medium or risky ones after downward trends.

Ostrowska-Dankiewicz, A. (2015) conducted the research of effectiveness of selected ULIPs in Poland. For evaluation of the risk and the profitability of allocating money in selected unit-linked insurance plans Anna Ostrowska-Dankiewicz selected the following measures - Rate of Return, Information Ratio, Sharpe Ratio and Standard Deviation. The author emphasized that the profitability of ULIPs can be measured with the help of numerous methods and results for the same fund can be different. Hence, for clients when deciding in what unit-linked insurance plan to invest it is important to understand what indicators are used by the insurer to measure the profitability of the ULIP. In that case the potential client will have the opportunity to compare performance of available ULIP funds and choose correctly. As it can be seen, there are some gaps in the studies of ULIPs. In some rsearch, excellent qualitative analyses were employed, but there were no quantitative parts at all and vice versa. It does not allow to obtain the overall and full results in the field and makes the study incomplete. Moreover, the lack of research, dedicated to Russian unit-linked insurance plans, is observed. There are some qualitative works, dedicated to the nature of ULIPs, however, there are no studies, aimed on an evaluation of effectiveness and risk of unit-linked insurance funds in Russia. Hence, the author would like to fill in the gaps and conduct the research of market performance of ULIPs in Russia with implication of both qualitative and quantitative methods.



1. Data and research methodology

The study is based on data from different courses, such as news and theme websites, insurers' official websites, brochures of ULIP products, newspapers, magazines as well as information, received due to direct contacts with representative of examined insurance companies.

The information about 8 ULIP policies, offered by 8 Russian life insurance companies, was collected for the research. The period of study is 8 years, starting from 2009 and ending in 2016. The author emphasized that only ULIPs and its funds which exist more than 5 years are considered in order to make the research maximally indicative and relevant.

The research is divided into two parts:

· qualitative and comparative analysis of major features of ULIPs which are offered in Russia;

· quantitative analysis of Russian ULIP funds market performance.

In frames of the first part of the research, chosen unit-linked insurance plans will be examined from the point of its major characteristics:

· entry age;

· duration of policies;

· entry sums;

· currencies of the policy;

· cancelation conditions;

· policy management;

· insurance risks;

· investment strategies (funds).

In the second part of the research the analysis of market performance of ULIP funds will be employed. There are several measurements which evaluate the profitability and the risk of investments into ULIP schemes. In this research Return Rate or Scheme Return, Standard Deviation, Beta coefficient, Information Ratio, Sharpe Ratio, Treynor Ration and Jensen's Measure will be employed.

1. Return Rate or Scheme Return

This measure evaluates performance of the ULIP fund's portfolio for the period of one year. Using the share value in the beginning and in the end of the period, it shows either the growth, the stagnation or the decline of the share value during the considered period. The greater the return, the better the ULIP fund performed and the greater the income from investments occurred.

,

Where,

ULIP fund Return rate; Opening NAV or Net asset value of share unit at the end of the period (t); Closing NAV or Net asset value of share unit in the beginning of the period (t-1).

2. Standard Deviation

This measure is utilized to define the amount of risk, associated with the portfolio. The higher the indicator, the riskier the asset.

,

Where,

- ULIP fund Standard deviation; ULIP fund return rate in period; Mean ULIP fund rate of return; Number of periods.

3. Information Ratio.

This ration examines risk-adjusted returns. It is employed to measure performance of one's portfolio in comparison with its benchmark. Moreover, Information Ration indicates the consistency of investment performance - the higher was IR, the more consistent was investment management and the lower risk was taken to achieve the results (Ostrowska-Dankiewicz, A., 2015). Consistency is considered as the ideal trait of the fund manager which implies that the manager acts rationally, basing on knowledge and professional experience, follows a certain investment strategy with the aim to generate high returns with lower risk.

,

Where,

Information Ration; ULIP fund rate of return; Benchmark rate of return; Tracking error or active risk. Tracking error is regarded as a standard deviation of the difference between ULIP fund return rate and benchmark rate of return and used to evaluate volatility of the portfolio in comparison with its benchmark.

4. Sharpe Ratio

This ration was created by William Sharpe in 1966 and still used for evacuating performance of different investments (Sharpe,W., Alexander,G.J.& Bailey,J.W., 1998). It measures portfolio returns in relation to returns, generated by risk free instruments. Hence, it determines the excess return, generated by the portfolio per unit of its total risk. The greater the ratio, the better risk-adjusted performance of ULIP fund, i.e. the higher return is generated per unit of its risk.

,

Where,

Sharpe Ratio; Mean ULIP fund rate of return; Risk-free asset Return rate; ULIP fund Standard deviation.

5. Treynor Ratio

Treynor ratio is very similar with Sharpe ratio. It also evaluates the excess of return that is generated by the portfolio per unit of its market risk with respect to risk free investments (Treynor, J.L., 1965). The difference between Sharpe and Treynor ratio is that for measuring volatility in Treynor ratio, instead of standard deviation, beta coefficient is used. Respectively, the greater the Treynor ration, the better performance is shown by the ULIP fund.

,

Where, Treynor Ratio; Average ULIP fund rate of return; Average risk-free asset return rate;ULIP fund Beta.

6. Beta coefficient

Beta is employed to evaluate volatility or systematic risk of the portfolio in comparison with the benchmark which reflects the market. It allows to compare the riskiness of the selected security and the whole market and reflects the stability of the portfolio. The portfolio with the positive beta greater than 1 is regarded as riskier that the market, but also it tells about positive correlation between the assets. Positive beta values smaller than 1 mean that the observed security is less volatile then the market. Zero beta is observed when there is no correlation between returns of the security and the market. If the beta coefficient is negative, it means negative correlation between the portfolio and its benchmark.

,

Where,

ULIP fund Beta; ULIP fund rate of return; Benchmark rate of return.

7. Jensen Measurement or Jensen alfa

Jensen alfa measures the excess return, generated by the portfolio, in relation to what was predicted by Capital Asset Pricing Model. The Jensen alfa evaluates how much of the portfolio's rate of return is attributable to the manager's ability to deliver above-average returns, adjusted for the market risk. The higher the ratio, the better risk-adjusted returns. A portfolio with a consistently positive excess return will have a positive alpha, while a portfolio with a consistently negative excess return will have a negative alpha.

,

Where, Jensen measure; ULIP fund rate of return in t period; Risk-free asset return rate; ULIP fund Beta.

2. Analysis

The unit-linked insurance market in Russia shows a significant growth in the recent yeas. According to the Central Bank of Russia, the number of contracts in this segment has been increased by 53,3% and was equal to almost 371 000 in the end of 2017. 63,4% of insurance premiums were collected due to unit-linked policies in 2017. The volume of the Russian unit-linked insurance market was 88,4 billion rubles in 2017 (Expert RA, 2017).

In the research 8 ULIPs of 8 life insurance companies are examined. These companies were selected due to several reasons. First, chosen insurers are the pioneers of the market and were the companies who suggested the first ULIPs in the Russian market. Moreover, they are the leaders of the market who collects the largest premiums in the Russian unit-linked insurance market and together constitute 86,4% of the ULIP market in Russia (Kucherova, O.,2017, Table 2). Therefore, the analysis of selected ULIPs will be rather representative for the whole industry.



Table 2. Market shares of the top 8 players in Russian unit-linked insurance market in 2017. Source:http://www.banki.ru/news/daytheme/?id=10063487

№	Insurance company	ULIP	Market share
1	Sberbank Life	Smartpolice	29,8%
2	VTB Life Insurance	Capital Management	19,2%
3	URALSIB Life	Capital in plus	17,2%
4	AlfaStrakhovanie-Life	Maximum	6,5%
5	Rosgosstrach-Life	Investor	4,4%
6	Renaissance Life	Growth vector	4,2%
7	Ingosstrakh-Life	The right decision	2,0%
8	SOCIETE GENERALE Life Insurance	PRIME INVEST	1,3%

Further the author is going to discuss major characteristics of selected unit-lined insurance products (Table 3).

The minimal entry age is the same for all observed policies and equal to 18 years. However, there are some differences in limitations of the maximal age of policyholders. This policy feature varies from 72 to 83 years old. VTB Life Insurance requires its clients to be under 72 years to participate in their Maximum policy. Renaissance Life is the most flexible insurer on this issue and allows its policyowners to be 83 years old at the moment of entering the contract.

The minimal term of unit-linked insurance contracts is the same in all insurance companies, except Sberbank Life. The last one suggests the policy with the minimal duration of 5 year, when all the rest insurers have 3 years as the minimal policy term. Sberbank Life also suggests the ULIP contract with the duration of up to 10 years which is regarded as the maximum possible term of Russian ULIP. ULIPs which are provided by VTB Life Insurance and Ingosstrakh-Life are respectively short-term and last only for 3 years. URALSIB Life, AlfaStrakhovanie-Life, Renaissance Life and SOCIETE GENERALE Life Insurance provide their client with the opportunity to have 5 years unit-linked insurance contracts.

Talking about entry sums of ULIP contracts, URALSIB Life, AlfaStrakhovanie-Life and Renaissance Life set 30 000 RUB as the threshold for its unit-linked insurance programs. 350 000 RUR is the maximum entry sum of ULIP, provided by VTB Life Insurance. As Rosgosstrach-Life and SOCIETE GENERALE Life Insurance offer ULIP policies in USD, these companies also set the entry in USD which are equal to 7500 USD and 5000 USD, respectively. Sberbank Life has USD ULIPs as well. All the rest insurance companies offer only ruble as a currency of ULIPs.

Table 3. Major characteristics of ULIPs in Russia.

№	ULIP	Entry age	Duration	Entry sum	Currency
		Minimal	Maximal	Minimal	Maximal
1	Sberbank Life Smartpolice	18	80	5	10	100 000 RUB	RUB, USD
2	VTB Life Insurance Maximum	18	72	3	3	350 000 RUB	RUB
3	URALSIB Life Right decision	18	82	3	5	30 000 RUB	RUB
4	AlfaStrakhovanie-Life Capital in plus	18	75	3	5	30 000 RUB	RUB
5	RGS-Life Capital Management	18	70	3	7	100 000 RUB/7500 USD	RUB, USD
6	Renaissance Life Investor	18	83	3	5	30 000 RUB	RUB
7	Ingosstrakh-Life Vector	18	82	3	3	100 000 RUB	RUB
8	SOCIETE GENERALE Life Insurance Prime Invest	18	80	3	5	100 000 RUB/5000 USD	RUB, USD

The author noticed that Sberbank Life which has almost 30% of the market and Rosgosstrach-Life with almost 20% market share provide the longest ULIPs. Long-term ULIPs are regarded as more profitable and less risky (Khurana, A. & Goyal, K., 2010). Moreover, they issue not only ruble policies, but also US dollars ULIPs which are also attractive for policyholders, as they can earn money on RUR/USD exchange rate difference. Sberbank Life and Rosgosstrach-Life gather the biggest premiums and generate higher profits in Russian ULIP market, so they can benefit from their financial stability by providing more diverse and more favorable policies for their clients. And in its turn, it helps to expand their influence even further by attracting more clients to these insurance companies and increasing the trust of regular customers as well.

SOCIETE GENERALE Life Insurance also provides the opportunity to issue a policy in USD. The author suggested that it can be connected with the fact that this insurance company is originally based in France, so the management of the company is experienced to work all over the world under restrictions, imposed by different countries' regulations. Thus, ULIPs in USD for them is widespread and rather transparent product for them.

Talking about insurance risks, traditional unit-linked policies provide coverage for the following risks:

· survival of the Insured person before the due date;

· death of the Insured person;

· death of the Insured Person in a result of an accident.

The insurance event of the risk of the survival of the Insured person before the due date is implied to be the survival of the Insured person before the end of the contract. Generally, insurance companies provide the payment of 100% insurance premiums as well as an investment income if it is accumulated on the date of insurance event.

The insurance event on the risk of the death of the Insured person is the death of the Insured person during the period of the contract, caused by any reason. In that case an insured payment will consist of 100% an insurance premium and an income from investments if it is applicable.

The insurance event on the risk of the death of the Insured Person in a result of an accident is the death of the Insured person in the result of an accident, for instance, car accident, fire, criminal attacks or drowning. In these cases, the beneficiary receives 100% an insurance premium, increasing by an investment income, as an insurance payment. Moreover, if the accident takes place and causes the death of the insured person, the insurance companies often provide the payment not only on the risk of death of the Insured Person in a result of an accident, but also on the risk of death of the Insured person. Thus, the beneficiary receives an insurance payment on two risks - 200% of an insurance premium as well as an investment income.

Additionally, some insurance companies, for instance Sberbank Life, set the time frames for the risk "Death of the Insured Person as a result of an accident ". It means the death which happens within 180 days after an accident, also will be regarded as the death of the Insured Person as a result of an accident and insurance payment will be paid according to the insurance risk «Death of the Insured Person in a result of an accident». Traditionally, ULIP contracts put some limits on the notion of "an accident" which causes the death of insured person and do not classify some accidents as insurance events. For example, the most common situations that will not be regarded as insurance events: the death in the result of a suicide, drunk driving, extreme kind of sports, nuclear explosion, radiation and radioactive contamination.

It is important to emphasize that these insurance risks can vary from company to company (Table 4). Further the author will discuss it.

The policy which offers the maximal financial insurance protection is Maximum by VTB Life Insurance. This policy has standard insurance risks:

· survival of the Insured person before the due date;

· death of the Insured person;

· death of the Insured Person as a result of an accident.

This policy offers the standard insurance payment of 100% of an insurance premium, increased by an investment income, on the risk of survival of the Insured person before the due date.

The distinguished feature of this policy is that on the risk of death of the Insured person the company pays 150% of an insurance premium and an income, gained from investments. Moreover, in case of death in the result of an accident, the insurance payment will be equal to 300% of an insurance premium, increased by an investment income. This is the only policy in the market which offers such a significant insurance payment.

However, the contracts put a lot of limits on the classification of an insurance event as an accident. For example, the death in the result of sport activities, the death of the insured person in the prison, the death of the insured person if he or she is admitted to be in the state of intoxication (alcoholic, narcotic or toxic) and the disappearance of the insured person.

Insurance risks and insurance payments of SberbankLife, URALSIBLife, Rosgosstrach-Life and SOCIETE GENERALE Life Insurance are the same. These insurers admit the following insured risks:

· survival of the Insured person before the due date;

· death of the Insured person;

· death of the Insured Person as a result of an accident.

Insurance payments for risks of the survival of the Insured person before the due date and the death of the Insured person are 100% of an insurance premium and a gain from investments. The death of the Insured Person as a result of an accident results in payment of 200% of an insurance premium and an investment income as well. However, the ULIP, provided by Sberbank Life, does not have as many restrictions as the rest of selected companies have on the process of classifying an insurance event as an accident. For instance, under SmartPolice of Sberbank Life the death of the insured person in war actions or in the result of HIV and AIDS is considered to be an insurance event and causes the payment of insurance sums, while vast majority of insurers regard these events as exception and insurance payments are nor implied on these cases.

Renaissance ULIP provides the product Investor with only two insurance risks:

· surviving before the expiration of the policy;

· death of Insured person.

On the risk of survival of the Insured person before the due date the traditional payments of 100% an insurance premium and an income from investments are implied. The death of the Insured person is covered as 200% of an insurance premium and an investment income as well.

Ingostrakh-Life insurance company has three traditional insurance risks with traditional payments of 100% an insurance premium and an income from investments on risks of the survival of the Insured person before the due date and the death of the Insured person and 200% an insurance premium and an investment income in case of the death of the Insured Person as a result of an accident. However, it should be pointed out that the insurer expanded the list of insurance risks and stated the death in the result of a traffic accident as the autonomous insurance risk with triple an insurance premium increased by an investment income as an insurance payment. The product Capital in Plus, offered by AlfaStrakhovanie-Life, has the poorest insurance protection among the investigated insurers. On all of three insurance risks the policyholder receives only 100% of an insurance premium, increased by an investment income if it occurs.

Table 4. Insurance risks of ULIPs in Russia.

№	Insurer	Insurance risks	Insurance payment Calculated as the percentage of an insurance premium, increased by an investment income.
1	Sberbank Life, URALSIB Life, Rosgosstrach-Life SOCIETE GENERALE Life Insurance, Renaissance Life	surviving before the expiration of the policy	100%
		death of Insured person for any reason	100%
		death of the Insured Person in a result of an accident	200%
2	VTB Life Insurance	surviving before the expiration of the policy	100%
		death of Insured person for any reason	150%
		death of the Insured Person in the result of an accident	300%
3	AlfaStrakhovanie-Life	surviving before the expiration of the policy	100%
		death of Insured person for any reason	100%
		death of the Insured in a result of a plane crash / shipwreck / train derailment	100%
4	Renaissance Life	surviving before the expiration of the policy	100%
		death of Insured person for any reason	200%
5	Ingosstrakh-Life	surviving before the expiration of the policy	100%
		death of Insured person for any reason	100%
		death of the Insured Person in a result of an accident	200%
		death of the Insured Person as a result of an traffic accidents	300%

Further the author will discuss opportunities of policy management of selected ULIPs.

Policy management implies that policyholders can apply some changes to their unit-linked insurance contracts. Insurance companies do it in order to provide their customers with more freedom individualize their services and make it more comfortable for every client. There are all possible policy management options which are available under Russian ULIPs:

· change of the fund - allows to change investment strategies during the contract in case of poor performance of the selected fund;

· fixation of profitability - the opportunity to “froze” an investment income, gained earlier. It is reasonable to apply this option, if fund performance was good and it earned an outstanding income;

· additional sum - the opportunity to add money to the policy;

· withdrawal of an income - allows to withdraw an investment income before the expiry date of the contract;

· prolongation- the opportunity to extend the period of the policy.

The widest range of all five options are provided by Sberbank Life under ULIP SmartPolice. It can be connected with the fact, that Sberbank is the leader of the market with 30% of market share. As it was said earlier, due to its stable position, the company can provide the widest management options to make its product SmartPolice more attractive for clients. VTB Life Insurance, URALSIB Life and Ingosstrakh-Life allow their clients to change an investment strategy during the period of the contact as well as fix an earned investment income. These can be regarded as the indicator of the intention of these insurers to improve their services and continue the development in this field. All the others do not provide any opportunities to their clients to manage their unit-linked insurance contacts. The author also pointed out that Rosgosstrach-Life with the rather significant market share and available recourses for making its policy better for policyholders does not provide any options of policy management. It might indicate poor management of the insurance company who are responsible for products and its development or it also might be that the company is not aimed on further expansion and growth in this field.

Unit-linked insurance contacts always have specified durations - a clearly stated period of time during which the contact is on force. However, there is the opportunity to cancel the policy before the date of its expiry, paying a particular amount of redemption sum to the insurance company. The amount of redemption sum is set by an insurer and can vary, depending on the remaining years of the contracts and the company which provides the ULIP. A redemption sum is calculated as the percentage of one's insurance premium (Table 5, Table 6).

Analyzing selected insurance companies, the author figured out that the policyowners can return from 71% to 80% of an insurance premium in case of 3-year ULIP cancelation on the first year of the contract. On the second year of the police it is possible to receive from 80% to 87% of an insurance premium, on the third year - from 88% to 94%. The closer the date of expiry, the bigger the insurance premium percentage, returned by the insurer. Among 3 years policies the most advantageous cancelation conditions are suggested by Ingosstrakh-Life. It allows to return from 80% to 94% of an insurance premium, depending on the fact how many years are left until the expiry of the policy. VTB Life Insurance redemption sums differ from Ingosstrakh-Life's ones only marginally on 2%. URALSIB Life, Rosgosstrach-Life and SOCIETE GENERALE Life Insurance allow to return from 71% to 75% on the first year of the contracts, 80-81% an insurance premium within the second year and 88-90% on the last year of the policy.



Table 5. Redemption sums of three-year ULIPs in Russia.

№	Insurer	Product	Redemption sum Calculated as the percentage of an insurance premium.
			1	2	3
1	VTB LifeInsurance	Maximum	78%	85%	92%
2	URALSIB Life	The right decision	71%	81%	88%
3	Rosgosstrach-Life	Capital Management	71%	80%	89%
4	Ingosstrakh-Life	Growth vector	80%	87%	94%
5	SOCIETE GENERALE Life Insurance	"PRIME INVEST"	75%	80%	90%

Under 5 years ULIPs, the policy cancelation on the first year is not recommended at all, as in that case the policyowner can return only from 57% to 65% of an insurance premium. It is important to mention that the difference in returned sums provided by selected insurers in case of policy cancelation during the first year of the contact are rather significant and amounts to 8%. However, after 3 years of the contract this difference is equal to 5%. Eventually, when it is only 1 year left before the expiry date, there is only marginal difference of 1% in redemption amounts of insurers.

SOCIETE GENERALE Life Insurance provides the best cancelation conditions on 5 years unit-linked insurance plans and allows to return from 65% to 90% of an insurance premium. URALSIB Life redemption sums are differed SOCIETE GENERALE Life Insurance's only slightly (1-2%). Rosgosstrach-Life has less redemption sums, especially when from 1 to 3 years of the contract are gone.

Table 6. Redemption sums of five-year ULIPs in Russia.

№	Insurer	Product	Redemption sum Calculated as the percentage of an insurance premium.
			1	2	3	4	5
1	URALSIB Life	The right decision	63%	71%	76%	82%	88%
2	Rosgosstrach-Life	Capital Management	57%	64%	71%	80%	89%
3	SOCIETE GENERALE Life Insurance	"PRIME INVEST"	65%	70%	75%	80%	90%

Not only the number of years before the expire date of the policy defines the amount of redemption sums.

First, insurance service charges and fees are not clearly stated in the Russian ULIP contracts, but do influence the amount of redemption sums. As the ULIP is officially started, several insurance operations have already occurred. Hence, the insurance company had already had some costs, associated with this contact (Valluvan, S., Sivasakthi, G. & Ida, D., 2015), for example:

· Policy(Administration) Charges - fees for administration of the policy, including fees for cancelation of the contract;

· Fund Management Charges - costs, associated with managing the fund;

· Mortality Charges - fees for providing an insurance coverage.

Thus, it is fare insurers would like to cover their expenditures. As these charges can vary greatly from company to company, it can result in different redemption sums provided by insurers.

Moreover, the difference in the amount of redemption sums of insurers can be connected with the profitability of insurers funds which generate an income to cover a guaranteed part of the contract. An income earned by guaranteed funds is considered to provide 100% return of an insurance premium to the client in the end of the ULIP. Thus, the faster and the more successful the fund of the policy earns an income, the larger redemption sums can be provided under the policy.

Moreover, even overall state of the stock market influences the size of redemptions sums, provided by insurers. Poor performance of ULIP funds can result in the decrease of redemptions sums and visa versa.

Talking about the difference in the amount of redemption sums of insurers, the author suggested that it can be connected with the fact that insurance companies who have relatively small market shares try to attract new clients by mitigating features of contracts and make it more favorable for potential customers. Respectively, larger insurers have their regular customers and are not so concentrated on attracting new ones, so they set less favorable redemption sums for their policies.

Thus, on three-year-policies, Ingosstrakh-Life with 4% of the market share has the best cancelation conditions. The most favorable policy cancelation conditions under 5-year contracts were provided by URALSIB Life and SOCIETE GENERALE Life Insurance who have only 1-2% of the market. Moreover, Rosgosstrach-Life with almost 20% of the market has relatively small redemption sums especially for 5-years ULIPs.

Table 7. Investment strategies and funds of Russian ULIPs.

ULIP	Investment strategy	Benchmark
Sberbank Life US Equity Market	stocks of leading American corporations	SnP-500
Sberbank Life New technologies	stocks of corporations producing innovative products	MSCI World*
Sberbank Life Global Bond Fund	75% corporate and governmental bonds and 25% - stocks of leading international corporations	25% - MSCI World + 75% - S&P U.S. High Yield Corporate Bond Index
VTB Life Insurance Medicine of the future	stocks of pharmaceutical, medical and biotechnological giants	Stoxx Europe 600 health care index.
VTB Life Insurance World wealth	securities of Europe, the USA and Japan, real estate, raw material, developing countries' stocks and protection governmental bonds	80%*MSCI World + 20%* S&P U.S. High Yield Corporate Bond Index
URALSIB Life Medicine of the future	stocks of leading medical corporations	MSCI Europe Health Care Index
URALSIB Life World brands	securities of American consumer-staples firms	Thomson Reuters US Non-Cyclicals или Vanguard Consumer Staples ETF (VDC)
AS-Life High dividends	financial services, industry and FMCG corporations' stocks	S&P Global 1200 Dividend Stability Low Volatility Index (EUR)
RGS-Life Sure choice	shares of tobacco, alcohol industry and leading enterprises of the military-industrial complex	SnP-500
RGS-Life Food	stocks of international food producers	S&P Food & Beverage Select Industry Index
Renaissance Life Sputnik	n/a	SnP-500
Ingosstrakh-Life Balanced growth	governmental bonds of European countries majorly with small share of stocks of high tech companies	85%*BBgBarc Euro Agg Bond TR EUR + 15%*MSCI All Country World Information Technology- Net Return in USD (USD)
Ingosstrakh-Life Innovative Pharmaceuticals	stocks of biotechnological and Pharmaceutical corporations	Dow Jones Pharmaceuticals & Biotechnology
SG Life Insurance Portfolio of shares	stable actively developing companies from Canada, the USA, Asia, Europe, Australia and New Zealand	Dow Jones Global Index
SG Life Insurance Multifund	stocks of the most successful corporations from Europe	STOXX Europe 600

Each ULIP of selected companies has from one to three funds with different investment strategies. In the research, the author collected information about nature of ULIP funds' investments and, based on it, benchmarks for every fund were specified. The results are represented in the Table 7.

Analyzing the investments strategies of selected ULIPs, some major and more frequent ones were recognized by the author.

The most popular strategy among Russian ULIP funds is investing in the most profitable and successful corporations from all over the world which are market leaders of their fields. For example, the portfolio of Sberbank Life US Equity Market fund is focused on the stocks of leading corporations of the United States of America. VTB Life Insurance World wealth fund majorly consists of securities of corporations from Europe, the USA and Japan. High dividends fund of AlfaStrakhovanie-Life invests in stocks of market leaders of the following sectors of economy - financial services, the industry and FMCG.

Moreover, an innovative medicine is also one of the most common investment directions of ULIP funds in Russia. VTB Life Insurance and URALSIB Life funds called «Medicine of the future» and Ingosstrakh-Life Innovative Pharmaceuticals fund concentrate on investing in giants of medicine who are focused on development of pharmaceutical industry with the help of modern technologies.

Some unit-linked insurance plans have funds which are concentrated majorly on governmental and corporate bonds. As a rule, these funds have from 75% to 85% of different kinds of bonds in their portfolio and the rest of portfolio consists of stocks of the largest and the most profitable companies from Europe and America. Ingosstrakh-Life and Sberbank Life have these kinds of funds on offer.

Further the author researched performance of ULIP funds of Russian insurance companies during the period, starting from 2009 and ending in 2016. The author started the analysis with return rates calculations of observed ULIP funds. (Figure 1, Appendix A)

Figure 1. Average rates of return of Russian ULIP funds in 2009-2016.

During the observed period, the highest average return rate was observed in RGS-Life Sure choice fund and was equal to almost 17%. Moreover, this fund also had one of the largest maximum of 33,8% and did not have any negative returns during the period from 2009 and until 2016. Sberbank Life US Equity Market and Sberbank Life New technologies funds were also rather successful with the average return rate of 14,2% and 13%, respectively. Maximum rates of return of these funds are also very high (33,6% in 2014 and 39,8% in 2009 respectively).

However, the portfolios of these funds were a bit volatile during the observed period. Sberbank Life US Equity Market fund minimal rate of return was observed in 2017 and was equal to -8,7%. Sberbank Life New technologies fund received -4% in 2011. The poorest performance was shown by both funds of VTB Life Insurance with rates of return a little bit less than 3%. The best 18,4% return of VTB Life Insurance Medicine of the future fund was noticed in 2013, however, negative rates of return were observed in 2009, 2014, 2015 and 2016 which indicates the high volatility and risk of the portfolio. VTB Life Insurance World wealth fund shown the best rate of return in 2009 which was equal to 24,7%. However, the portfolio is also not stable, as the minimum return rate of the fund was -24% in 2009.