Donna Kinnaird is the president of Swiss Re Life & Health America Inc., and an outspoken voice on term life pricing. She spoke with National Underwriter recently to discuss where term life pricing is, where it’s going and where it needs to be.
There have been some increases in term life pricing, but not quite enough. What is going on? Over a 13 year period of time, until 2008, we’re looking at close to a 30% decrease in term pricing. In 2009, we saw a 5%-6% increase in term prices, and this year, another point increase in term prices. So, maybe a 6-7% increase in term prices. We believe that prices should continue to go up.
Why? When pricing products, individual insurance companies are looking at higher funding costs associated with the letters of credit that they use to fund redundant reserves. Also, investment yields are low and will continue to be low for quite some time. Our economic research and consulting people tell me that in their opinion, there will be market volatility though at least mid-2011. As far as the yields are concerned, they don’t see 5% on a 10-year until probably the end of 2012.
Through the financial crisis, people had to go out and raise capital at higher cost. And because now they have capital on their books that is costing them more than before, they will have higher required returns to meet their numbers.
The industrywide demand for funding right now is probably about $85 billion, and if you look out to 2020, depending on how the rules do or don’t change, the demand could grow to be as much as $136 billion to $150 billion. Everyone is going to be looking for funding to support these reserves.