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5 Questions Agents Are Asking About the Principal News

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Principal Financial Group Inc. is now preparing to go down the same road that many other competitors have taken: It’s getting ready to end sales of retail individual fixed annuities and retail individual life insurance policies, and to tilt more firmly toward the sale of variable products.

The announcement will have no effect on policies, contracts or agreements already in place, Principal says.

The life companies turning onto “Variable Products Tilt Drive” — including Ameriprise Financial, AXA, MetLife, Prudential Financial, Voya and others — hope to get more of their revenue from asset management services, mortality protection and longevity protection, and less of their revenue from protecting customers against ups and downs in stock prices or interest rates.

The insurers are responding to the effects of years of punishingly low interest rates, and fears that low rates might be a permanent feature of the economy.

Here are five questions about the industry shift that agents, brokers and distributors are asking, based, in part, on commentary from Larry Rybka, the CEO of Valmark Financial Group of Akron, Ohio.

1. Will all issuers end up on Variable Products Tilt Drive?

Rybka pointed to results from a recent EY executive survey: about 58% of insurance companies around the world expect to divest at least one significant business within the next two years.

He sees insurers that have traditionally focused on selling fixed products developing variable products.

2. Which companies have avoided placing bets on a belief that interest rates on bonds would eventually increase?

Life insurers face pressure because they depend heavily on investing premium dollars in corporate bonds and other interest-dependent arrangements, such as mortgage loans and portfolios of mortgage loans, to fund their operations.

Rybka noted that he and Marshal Jones wrote an article in 2005 about their belief that some life insurance companies were, in effect, using universal life insurance policies with secondary guarantees to bet that interest rates would go up.

Producers wonder which life insurers have developed and priced appealing fixed life and annuity products that can withstand a “lower for decades” interest rate environment.

3. Why do life insurers still tinker with the fixed products?

One agent reported that at least one insurer overhauled traditional fixed life underwriting rules shortly before tilting away from traditional life products.

4. What happens to convertible term policies?

An agent noted that his firm often sells term life to customers, then helps the customers use policy conversion features to get universal life coverage.

The agent wondered whether a company that pulls away from the fixed life market, and promises to keep existing term life policies in place, will maintain the quality of policy conversion options.

5. What do discontinuations of some types of products mean for other products?

One agent said he has concerns about the long-term products still available from insurers that are discontinuing the sale of traditional fixed products.

(Image: Brian A Jackson/Shutterstock)