A short history of variable contracts

Variable contracts or investment-linked insurance products is regulated by Sections 238 to 246 of the Amended Insurance Code. Investment-linked insurance have varying labels in different jurisdictions. In the US, it is known as variable life or variable universal life. In the UK, it is known as unit-linked, owing to its roots in unit trusts. In Asia, it is known as investment-linked, or insurance that is “linked” to investments. Others call it equity-linked insurance.

Variable contracts started out as unit-linked policies in the UK in 1957 when it was first introduced. It was unit trusts (or mutual funds as it is called in the US) that gave birth to variable contracts. When unscrupulous promoters of unit trusts started to appear, the UK government issued a government regulation in 1958, the Prevention of Fraud (Investments) Act, which required that unit trusts could only be sold by intermediaries or stockbrokers. This made the selling of mutual funds difficult. Sales could not be generated regularly so an idea was hatched for the sales of life insurance to generate sales for unit trusts, as well. Premiums of a life insurance policy would be invested in a unit trust. This scheme was pioneered in the UK by Americans Bernard Cornfeld and Edward M. Cowett who were selling mutual funds called Investors’ Overseas Services. Cornfeld eventually founded the International Life Insurance (ILI; later Cannon Assurance)which sold investment-linked insurance.The IOS was later mismanaged leading to its collapse.

Unit trusts originated in the United Kingdom in the second half of the 19th century. A unit trust is a form of collective investment constituted under a trust deed. A unit trust pools investors’ money into a single fund, which is managed by a fund manager. Unit trusts offer access to a wide range of investments, and depending on the trust, it may invest in securities, such as shares, bonds, and also properties, mortgages and cash equivalents. Those investing in the trust own “units” whose price is called the “net asset value.” The first unit trust was launched in the UK in 1931 by M&G under the inspiration of Ian Fairbairn. The rationale behind the launch was to emulate the comparative robustness of US mutual funds through the 1929 Wall Street crash. The first trust called the “First British Fixed Trust” held the shares of 24 leading companies in a fixed portfolio that was not changed for the fixed lifespan of 20 years. The trust was relaunched as the M&G General Trust and later renamed as the Blue Chip Fund. By 1939 there were around 100 trusts in the UK, managing funds in the region of £80 million.

Eventually, unit trust companies made arrangements with life companies to sell policies linked to their own units. In time, life companies developed their own unit-linked products. Today, unit-linked policies are so popular in the UK. According to the Association of British Insurers, as of 2013, one-third of the 7.2 million in force investment and savings policies were unit-linked policies. It also soon became popular in Canada, Australia, South Africa and the Netherlands where British insurers had a market base.

In the US, investment-linked insurance was first introduced in the mid-1970s. By 2014, according to Life Insurance Marketing and Research Association, new premiums were generated as follows: universal life and indexed universal life combined (38 percent), whole life (33 percent), term life (21 percent) and variable universal life (8 percent).

In Asia, investment-linked long term insurance products were first introduced in the late 1980s. In the Philippines, Pru Life UK pioneered unit-linked or investment-linked life insurance with the introduction of the PruLink Investor Account in 2002.


Dennis B. Funa is the current insurance commissioner. Funa was appointed by President Duterte as the new insurance commissioner in December 2016. E-mail: dennisfuna@yahoo.com.


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