INDUSTRY TRENDS
US first-half individual life sales
nosedive
Go deeper with GlobalData
Reflecting the severity of the US’ economic woes, individual life
insurance annualised premium income fell 23 percent in the first
half of 2009 compared with the same period in 2008, according to
data released by consulting and research organisation Limra
International. The decline, noted Limra, represented the steepest
experienced since the second half of 1942.
However, presenting a ray of hope the 20 percent sales decline in
the second quarter of 2009 was less severe than the 29 percent
decline recorded in the first quarter.
Also providing some encouragement, Limra reported that on a
year-on-year basis 40 percent of insurers increased their
individual life sales over the second quarter of 2008 compared to
less than 30 percent of insurers in the first quarter.
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By GlobalDataREGULATION
Canada to beef up stress testing guidelines
Canada’s Office of the Superintendent of Financial Institutions
(OSFI) has called for comments on draft guidelines it has issued
outlining its proposals for changes to stress testing applied by
insurers and banks in their risk identification and risk management
processes.
Outlining the rationale for its move, the OSFI said that while
recent events in financial markets have highlighted the importance
of stress testing programmes its experience and that of other
regulators indicates that many financial institutions, to varying
degrees, need to improve their stress testing programmes.
Weaknesses of many existing stress testing programmes noted by the
OSFI include exclusion of events considered to be unlikely or
extreme, or events for which no historical data exists.
After consideration of separate stress testing guidelines for banks
and insurers the OSFI opted for a standard approach which it
believes will ensure that the principles apply equally to all
regulated financial institutions.
However, with regard to insurers the OSFI intends to specifically
address the need for improvements in dynamic capital adequacy
testing and stress testing generally.
It is OSFI’s intention that the guidelines will be implemented in
late 2009.
HEALTH INSURANCE
US legislators demand answers from insurers
Escalating pressure on US health insurers, the Congressional
Committee on Commerce, Science and Transportation and its Oversight
and Investigations Subcommittee have sent letters to seven major
industry participants requesting information about purging of small
businesses when their claims increase.
Purging of less profitable business is achieved through
intentionally unrealistic rate increases. Wendell Potter, a former
health insurance industry executive, explained in a recent
testimony before a Senate committee.
The Senate committee is requesting information and documents for
small group policies, including their renewal rates, factors used
to determine premium rates and the maximum premium rate increases.
Letters were sent to Aetna, UnitedHealth, WellPoint, Humana,
Medica, and Wellmark Blue Cross Blue Shield.
“I began looking into the practices of the health insurance
industry in the last Congress and was deeply disturbed by what we
uncovered,” said the chairman of Senate committee, Henry
Waxman.
“As part of our ongoing investigation, we are now looking into the
practice of health insurance companies terminating the coverage of
small businesses when their employees become ill and their health
insurance claims increase. We need to better understand how
widespread this harmful and destructive practice has become, and
how it is impacting small businesses and their employees across the
country.”
REGULATION
US regulatory standards put to the global test
US insurance regulators have given themselves credit for their
adherence to principles established by the International
Association of Insurance Supervisors (IAIS).
This follows a self-assessment by the US National Association of
Insurance Commissioners (NAIC) as part of the Financial Sector
Assessment Program (FSAP) co-ordinated by the US Treasury.
“The FSAP self-assessment process has given us an opportunity to
clearly demonstrate the many ways insurance regulation in the US is
absolutely consistent with international standards,” said Roger
Sevigny, NAIC president and New Hampshire insurance
commissioner.
Conducted worldwide, the FSAP is a joint project of the World Bank
and the International Monetary Fund and is designed to address
financial sector stability issues through an evaluation of the
regulatory rules and practices measured against the internationally
recognised standards and codes.
For insurance, the Insurance Core Principles developed by the IAIS
form the basis for the assessment of regulators’ observance of
international standards.
COMPANIES
Aegon Sony Life targets Japan’s annuity market
Japanese regulatory authorities have given their final approval to
Aegon and Japanese Sony Life to launch their 50:50 joint venture
(JV) Aegon Sony Life Insurance (ASLI).
Approval of ASLI, which is to open its doors to business in
December this year, marks the end of a lengthy process that began
in January 2007 with the announcement by the Dutch and Japanese
insurers of their intention to establish a JV.
ASLI, which is to become a specialist annuity product producer,
will initially focus on variable annuities with distribution
through Sony Life’s Lifeplanner sales employees, banks and other
financial institutions.
Despite current economic uncertainty the JV partners remain
confident that Japan’s VA market continues to have solid growth
prospects. Growth drivers include Japan’s ageing population – of
which some 40 percent is already over the age of 50.
Japan also has Asia’s largest pool of personal financial assets,
which is projected to reach nearly $19 trillion in 2017 noted the
partners.
MERGERS AND ACQUISITIONS
Lincoln Financial exits asset management
Marking its exit from asset management, US life insurer Lincoln
Financial Group (LFG) is to sell Delaware Management Holdings and
its subsidiary Delaware Investments to Australian investment bank
Macquarie Group. The $428 million cash deal is expected to close in
December 2009.
LFG reported that its investment management segment had assets
under management of $126.7 billion on 30 June 2009, down $15
billion compared with 30 June 2008.
Under the terms of the deal Delaware Investments will continue
managing LFG’s general account insurance assets under a long-term
contract as well as providing additional sub-advisory
services.
LFG’s president and CEO Dennis Glass commented that the transaction
will enable LFG to focus its management and capital resources on
its core insurance and retirement businesses.
LFG reported a net loss of $164 million in the first half of 2009.
Sales in the first half of 2009 totalled $825 million, down 37.5
percent compared with sales of $1.32 billion in the first half of
2008.
MERGERS AND ACQUISITIONS
Pacific Century snaps up AIG management units
In a move that will result in the shedding of more than 15 percent
of its assets under management ,American International Group (AIG)
is to sell a portion of its investment advisory and asset
management business to Bridge Partners, a company owned by Hong
Kong-based private investment firm Pacific Century Group.
AIG’s units being sold operate in 32 countries and manage $88.7
billion in assets for institutional and retail clients across
various strategies including private equity, hedge fund-of-funds,
equities and fixed income.
AIG is retaining its in-house investment operations that manage
total assets of about $480 billion.
Total consideration for the sale is about $500 million consisting
of a cash payment of $300 million at closing, plus additional
future consideration that includes a performance note and a
continuing share of carried interest.
PENSIONS
Ignorance fuelling UK retirement headache
Ignorance reigns supreme among an alarming proportion of UK adults
when it comes to private pensions, reveals a study conducted by
Friends Provident.
According to the life insurer 58 percent of adults do not even know
how to establish a private pension despite over half (55 percent)
either thinking they are currently not saving enough or facing the
reality they have not saved enough towards their retirement.
Making further “grim reading” as Martin Palmer, Friends Provident’s
head of corporate pensions aptly put it, 15 percent of adults have
given no thought to their retirement plans at all while 31 percent
are relying on receiving an inheritance to help fund their
retirement.
Other retirement income hopes are pinned on downsizing properties
or using an equity release plan by 23 percent of adults while 38
percent are planning to fund or already fund their retirement
through the state pension of £95.25 ($155) a week.
DEVELOPING MARKETS
LIC widens its lead on private Indian insurers
India’s state-owned Life Insurance Corporation (LIC) continued to
trounce its private sector rivals in July, recording sales of
INR52.4 billion ($1.1 billion) in July, up a massive 60 percent
compared with July 2008 according to the Insurance Regulatory &
Development Authority.
July’s performance by LIC built on a solid showing in the first
quarter of the industry’s 2009/2010 financial year when it achieved
an almost 20 percent increase in sales compared with the same
period in 2008 to INR90.3 billion. LIC’s performance is in sharp
contrast with the private insurance sector which recorded a 20
percent to INR54.3 billion in the first quarter of 2009/2010.
A similar trend was evident in July with many of the LIC’s major
private rivals recording poor sales performance. Notably, the
largest private life insurer ICICI Prudential saw sales fall 35
percent in July to INR3.9 billion.
INDUSTRY TRENDS
Recession takes its toll on Hong Kong insurers
Hong Kong’s life insurance felt the impact of economic recession in
the first half of 2009, reports the special administrative region’s
regulator, the Office of the Commissioner of Insurance (OCI).
According to the OCI, total new sales slumped 52.6 percent compared
with the first half of 2009 to HK$19.52 billion ($2.5 billion) with
the most significant damage done by linked individual life and
annuity sales which fell 77.4 percent to HK6.03 billion. Non-linked
individual life and annuity sales fell 7.3 percent to HK$13.26
billion.
However, despite the severity of the fall in new business in the
first half of 2009 the decline in the second quarter of 2009 was
not as severe as in the previous quarter – which the OCI reported
as being down 60.5 percent compared with the first quarter of 2008
to HK$8.54 billion.
Total in-force life premium income in the first half of 2009 of
HK$74.84 billion was down 18.6 percent compared with the first half
of 2008.
HEALTH INSURANCE
US health costs soar
Amid heated debate about the future of the US health care market,
affordability of health insurance in the US is set to be dealt
another blow according to human resources consultancy Aon
Consulting.
Based on data from 60 major health insurers representing more than
100 million insured individuals, the consultancy predicts that on
average health insurance premiums over the 12 months to August 2010
will rise by 10.5 percent, a rate of increase similar to that seen
over the previous 12 months.
“While we’re seeing a slight decrease in the trend rates, it’s
still at double digits, and this year, it’s compounded by a
struggling economy, lower wage increases, and in some cases, salary
freezes,” commented John Zern, Aon Consulting’s US Health &
Benefits Practice director.
INDUSTRY TRENDS
US insurers look to technology spending to support
growth
Shaking-off economic concerns, chief information officers (CIO) of
US insurers are focusing more on supporting growth and improving
operational efficiency as they begin their 2010 planning, reveals a
survey by Novarica, a specialist in financial services
technology.
Novarica’s findings are based on a survey of CIOs and other senior
executives at 50 insurers.
“Fewer insurers are focused specifically on dealing with the
economic crisis than in previous polls,” commented Matthew
Josefowicz, director of the insurance practice at Novarica.
According Novarica, top projects for the rest of 2009 and 2010
include policy administration, business intelligence, and claims.
Agent portals, consumer portals, underwriter tools and workflow and
predictive analytics are also being prioritised by some
insurers.
RETIREMENT SAVING
Obama initiative aims to promote retirement saving
mindset
Changing Americans from spendthrifts to ardent retirement savers
underlies measures aimed at promoting retirement savings announced
by President Barack Obama in a radio address on 5 September.
The objective of his initiative, explained the president in his
speech, was to alter the American mindset from one that puts the
interests of the short-term ahead of the needs of long-term.
Obama outlined four key features of his initiative:
• Expand opportunities for automatic enrollment in 401(k) and other
retirement savings plans;
• Make it easier for more than 100 million families to save a
portion or all of their tax refunds;
• Enable workers to convert their unused holiday or similar leave
into retirement savings; and
• Help workers and employers better understand available options
for tax-favoured retirement savings.
During his speech the president stressed: “Half of America’s
workforce doesn’t have access to a retirement plan at work. And
fewer than 10 percent of those without workplace retirement plans
have one of their own.”
