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Guarantees, 'De-Risking' Were Top Product Trends In 2009

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The Great Recession continued in 2009 and so did its impact on insurance products.

Once again, guarantees were a major part of the product story–in terms of sales and product features. But another trend reared its head too–de-risking. That is, carriers sought to better manage risk exposure as part of their efforts to strengthen capital reserves. In the process, many insurers increased prices, reduced feature selection, placed occasional moratoriums on sales of certain products, and/or exited certain markets or lines.

This occurred as industry-wide sales of life, annuities, long term care and many other products slid, with only a few firms reporting sales growth.

Here is how various professionals around the country saw it all play out.


“It was a banner first quarter for sales of fixed annuities,” says Steve Clemens, vice president-life marketing at URL Financial Group, a Harrisburg, Pa. brokerage. He attributes this to the annuity guarantees. (When interest rates fell and some carriers had rating downgrades later in the year, sales did slow down, he adds, but the guarantees were still important.)

At his firm, the fixed sales were strongest among health agents and financial planners whose clients lost health care coverage or were concerned about what would happen to their coverage due to possible health reform, he adds. “Those clients wanted guarantees or fixed interest products, to protect their money.”

The story was similar at carriers. Advisor inquiries about guarantees were up during the year, reports Chris Littlefield, CEO of Aviva USA, Des Moines, Iowa.

In addition, consumers became more accepting of products that guarantee safety, he points out, citing Aviva research on waning consumer confidence in the wake of the decline in equities. That spurred interest in “pre-packaged solutions,” such as indexed, fixed and income annuities, he says. Nearly 50% of Aviva’s indexed annuity business includes guaranteed withdrawal income benefits, he notes.

Guarantees were a big story for variable annuities, too. For instance, “about 90% of our third quarter VA sales had some form of guaranteed living benefit attached,” says Steve Deschenes, senior vice president and general manager-annuities at Sun Life Financial U.S., Wellesley Hills, Mass. The turmoil of 2009 impacted retirement confidence, he says, so consumers not only wanted to retire later but also to have guarantees in their insurance products.

Life insurance sales were also influenced by guarantees. “There was a flight to safety and security in life insurance” due to all the economic instability, says Melissa A. McConville, vice president-brokerage of Kiselis Brokerage Services, Inc., San Antonio, Tex.

That drove life sales, she says, pointing to an uptick in sales of no-lapse universal life as one example. Kiselis saw a 50% increase in requests for applications and illustrations for these products, despite the price increases many carriers had instituted, she says. The products were selling well mostly in the older age market, age 55 and up, McConville notes.

So, too, at many life insurers. Before the economic meltdown, no-lapse UL was the most popular product, recalls Dan Mulheran, president–retail life distribution at ING, Minneapolis. “Now, for us, it is even more so,” he says, surmising that “people are still looking for certainty.” The same is true with whole life, he says, noting WL sales rose.

In fact, WL was a “bright spot” in 2009, says Mike Fanning, executive vice president, MassMutual, Springfield, Mass., with his firm’s WL policy count up 21% in the first 9 months, and WL premium up 9%.

New York Life attributes its 8% increase in life sales during the first 9 months to its “safe secure products,” as well as its financials and other factors.

At Aviva USA, traditional and indexed UL sales typically included a no-lapse guarantee, notes Littlefield.


De-risking was “important work” that life carriers did in 2009, according to Sun Life’s Deschenes.

The year was “all about navigating the financial crisis and de-risking and making product refinements to balance risk to benefit customers, shareholders and advisors,” he explains.

On the annuity side, some carriers left the market, either by product or product changes, Deschenes points out. Others were effectively removed from the market due to rating downgrades and the subsequent loss of distributors. Others, however, figured out how to sell their products but to be prudent about it in a long-term way, he says.

The refinements were designed to fund profitably at the right level of risk and return, Deschenes says.

Examples in VAs included setting withdrawal tiers and greater restriction on asset allocation, he continues. Some carriers also reduced the number of funds in their VAs or the maximum on equities available or in the allocation, he says. Others raised the price on rider fees.

On the fixed annuity side, volatility in the credit markets spurred a lot of flow into the business, especially into products of insurers with strong brands and balance sheets, he adds.

Low crediting rates did put pressure on fixed sales in mid-year, however.

In 2009, Deschenes sums up, “most of the work was on getting the crediting rates right.” There was no particular innovation in annuities, whether book value or market value adjusted, and the product portfolios did not change dramatically, he says.

On the life side, the carriers who were struggling with the credit crunch in 2009 did impact the market, points out Gary Victorson, a brokerage general agent with Victorson Associates Inc., Smithtown, N.Y.

Many announced plans to raise their term life insurance rates, he recalls. “That caused a scramble to get pending cases into the carriers before the deadline.”

It also became tough at times to replace business written in the last five or 10 years, he adds.

The capital crunch was definitely a top factor in the life market, agrees Aviva’s Littlefield. “Everyone looked at their life products, and how to make them more capital efficient,” he recalls, adding that carriers did “tremendous” work on this, analyzing solutions and cost implications.

But life policies were impacted by another factor as well. The changeover from the old 1980 Commissioners Standard Ordinary tables to the 2001 CSO caused a sea change in life products. This pushed carriers to retool their entire portfolios, says ING’s Mulheran, noting that the new life products look like the older ones, but they have more constrained cash values.

Some life carriers dropped 30-year level term policies and/or pulled out the return-of-premium term market, and many increased term prices and non-commissioned policy fees, says URL’s Clemens.

Despite that, he says, the year was a big one for his firm. Term sales were strong, particularly for 20-year level term followed by 10-year LT. Clemens attributes that to the distribution channels his firm used for these products–planners, health insurance advisors and agents who are not focused on life sales–and to the use of products that can be sold with a quick, short-form online application, which these producers prefer.

Some other trends from 2009 were:

Hybrid UL and LTC: Individual LTC sales slumped, but sales of UL with LTC or chronic condition acceleration riders were strong, especially among clients age 50+ who wanted an affordable LTC benefit, Clemens says. Lincoln Financial Group, Radnor, Pa., reports that hybrid UL with LTC sales were up 17% in the first 9 months compared to last year.

Indexed annuities. “We saw more people migrating to indexed solutions,” says Littlefield. The IA has less volatility than the VA because it is a non-correlated asset, he says, so that accounts for much of its appeal.

Indexed UL: This product line continued to grow, Mulheran says, noting that at ING, an IUL introduced earlier this year has seen seven-figure monthly production. At Aviva, IUL sales were level to modestly increasing during the first three quarters, says Littleton.

Income annuities: People were looking for more joint and survivor immediate annuities in 2009, reports John A. Kiselis, president and CEO of Kiselis Brokerage Services, Inc.

Kiselis’ firm has also been offering “joint and percent contingent immediate annuities,” which enable the primary annuitant to receive the full amount, even if the survivor dies first. (If the primary annuitant dies first, the secondary annuitant gets the percentage was selected at issue.)

Bad press. The big news for Michael Bodack, president of Sequoia Brokerage, Yonkers, N.Y., is “the understanding role of the press in the insurance marketplace.” Last year, he says, certain carriers offering ULs with no-lapse guarantees were top sellers. But in 2009, some of those carriers “jumped away” from the product due to concerns about their ability to support the guarantees over the long term. “That made the news, and now I can’t give (the products of those carriers) away, let alone sell them,” he says.

Equities market impact. The equities market decline made people realize they can’t safely peel off 6% from equities portfolios for retirement income any more, says Victorson. “They also no longer have the stomach to put 100% with a money manager.” So, a lot of the money that’s going into fixed annuities and immediate annuities is now coming from equities, he says. “That was a big change in 2009.”

Falling interest rates. Fixed annuity interest rates kept falling during the year, to the point that they became so low that many stopped buying fixed annuities and 10-year certain single premium immediate annuities, says Victorson. “Clients say they don’t want to lock in; they want to wait for rates to go back up,” he says. “In the past, it was easier to sell those policies. But now, it’s easier to sell lifetime SPIAs.”

Critical illness insurance. About 90% of CI sales were in the group and worksite insurance markets, says Dan Pisetsky, president of US Living Benefits LLC, Old Lyme, Conn. and founder of the National Assn. for Critical Illness Insurance. “Many brokers were selling CI as gap coverage for high deductible health care plans,” he says.


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