Podcast Center
Video Center
Webcasts
Resource Center
Events
October 10, 2012 at 12:46 PM
With interest rates that seem forever stuck in low gear, a stagnant economy and new capital reserving requirements on the horizon, the outlook for the life insurance and annuity business would appear to be cloudy at best. Yet speakers at the “2012 Variable Annuity & Life Insurance Summit: Managing Risk in Volatile Times,” sponsored by S&P Dow Jones Indices, found some reasons to be optimistic.
First, there are some pretty compelling demographics as huge numbers of pre-retirees seek retirement income solutions like annuities, pointed out keynote speaker Bob Kerzner, president and CEO of LIMRA, right. “This market will be good for the next 20 to 40 years,” he said.
Further, after barely surviving the recent market crash, investors are more conservative. “They are more concerned about getting that check in the mailbox [regularly],” Kerzner said. “That bodes well for the industry.”
Nevertheless, Kerzner said the next decade will not be easy for the insurance industry, with muted growth potential. He predicted a slight uptick in mergers and acquisition activity and that ultimately the industry will have fewer players.
Kerzner further noted the increased scrutiny on insurers’ capital reserves by regulatory agencies. “Consumers will be hurt if regulators over-require us to hold capital,” he stated.
Next up was Eric Berg, managing director of RBC Capital Markets, who discussed why insurance stock prices remain low. “Why are stocks down?” he asked. “I really don’t know.”
Even though companies have undertaken several de-risking measures, the market, he said, seems “to be saying that life insurance has a bad aroma.” He speculated that could be because of concerns over SIFI, greater capital requirements and continued low interest rates.
In particular, there’s concern about the risk in variable annuities, with “anxiety” in the investment community that these products will come “to a bad end,” Berg said.
Yet like Kerzner, Berg reiterated that the demographics remain in the industry’s favor.
The rise of VOLs
Much of the risk associated with variable annuities stems from the guaranteed benefits that are proving popular with consumers but are now becoming problematic for carriers. During the event, several mentions were made of companies raising fees, cutting or switching benefits or leaving the market altogether in an attempt to deal with guaranteed benefit riders.
