INDUSTRY TRENDS

Canadian insurers get
government backing

Canada’s government has extended a
helping hand to Canadian life insurers experiencing difficulty
accessing the wholesale capital market with an announcement by the
minister of finance, Jim Flaherty, of the establishment of the
Canadian Life Insurers Assurance Facility (CLIAF).

Under the CLIAF, life insurers will be
eligible for a guarantee against defaults of payment of principal,
accrued and unpaid interest on debt instruments issued with a
maturity of over three months.

The guarantee will be limited to a maximum of
three years from the date of issuance.

Debt instruments covered by the CLIAF may be
denominated in Canadian dollars, US dollars, euros, sterling and
yen with a minimum issuance size of C$1 million ($918,909) for
Canadian dollar denominated instruments and C$10 million for
instruments in the other four currencies.

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By GlobalData

Guarantees, however, come at a price. For
insurers that meet minimum credit ratings on senior unsecured
medium-term debt obligations the fee is 110 basis points of the
gross proceeds of the guaranteed instrument, while for those not
meeting the minimum rating requirements the fee is 135 basis
points.

 

COMPANIES

New York Life bolsters bank
channel capacity

Riding high on surging fixed annuity
sales in the US, mutual insurer New York Life (NYL) has bolstered
its bank channel sales capacity significantly.

According to NYL the number of internal sales
specialists has increased by 100 percent, regional wholesalers by
30 percent, retirement income specialists by 50 percent and service
staff by 40 percent, for a total of more than 100 new hires.

“Sales of New York Life’s fixed annuities in
the bank channel surged 130 percent and sales of income annuities
almost doubled in 2008, fuelling the need for growth in sales
support,” explained Andrew Reiss, vice-president and national sales
manager for NYL’s bank channel.

He continued: “Our sales growth is evidence of
this flight to quality: bank clients recognise that fixed annuities
from New York Life, a financially stable, triple-A rated company,
offer that stability and growth potential they seek.”

According to consulting and research
organisation LIMRA International, NYL recorded total fixed annuity
sales of $9.05 billion in 2008, giving it a market share of 8.3
percent and ranking it as the second-largest producer. (See US
fixed annuity sales continue to roar ahead
.)

 

COMPANIES

The Hartford decides to go back
to its roots

Ramani Ayer chairman and CEO of The
Hartford ended market speculation that the US insurer was about to
put its general and life insurance operations on the selling
block.

His statement followed news that The
Hartford had obtained preliminary approval from the US Treasury to
receive $3.4 billion under the Troubled Assets Relief Program
(TARP).

“We [the board and senior management] have
concluded that the best way to deliver long-term value to our
shareholders is to return to our historical strengths as a
US-centric insurance company, with a focus on our strong portfolio
of protection businesses, primarily property and casualty, group
benefits and life insurance,” said Ayer.

He added that The Hartford would also retain
its wealth management and retirement businesses, including mutual
funds, retirement plans and what he terms “a restructured annuities
business.”

In addition to the anticipated TARP capital
injection, The Hartford received $2.5 billion in a capital
investment from European insurer Allianz in October 2008.

The insurer has also announced a significant
scaling back of international operations including withdrawal from
variable annuity markets in Japan and the UK.

In the first quarter of 2009, it reported a
net loss of $1.21 billion following net losses of $806 million and
$2.63 billion, respectively, in the previous two quarters.

 

BANCASSURANCE

US banks record modest growth
in 2008

US bank holding companies (BHC)
recorded combined insurance revenue of $10.15 billion in 2008 – an
increase of 7.2 percent compared with 2007, reveals data published
by research firm Michael White in association with industry body
the American Bankers Association.

According to the report BHC brokerage fee
income in 2008 decreased from a record high in 2007, with revenue
growth in 2008 attributable to a 32 percent increase in insurance
underwriting revenue to $4.65 billion.

Topping the list of BHC’s was Citigroup with
revenue of $3.22 billion, almost a third of total BHC insurance
revenue. Citigroup was followed by Wells Fargo ($1.83 billion),
Bank of America ($1.82 billion), BB&T Corporation ($928
million) and HSBC North America ($506 million).

During 2008, 586 bank holding companies (or 67
percent of all large top-level BHCs) reporting earned some type of
insurance-related revenue.

 

INDUSTRY TRENDS

Strong calls for accounting
reform

The International Association of
Insurance Supervisors (IAIS) has called on the International
Accounting Standards Board and the US Financial Accounting
Standards Board to issue a single set of converged accounting
standards for financial instruments as soon as practicable.

The IAIS’ call follows a recommendation made
by the G20 for accounting standard bodies to take action before the
end of 2009 to reduce complexity of accounting standards for
financial instruments.

The G20 comprises finance ministers and
central bank governors of the world’s 19 largest economies and the
European Union.

“Thus far the insurance industry has weathered
the financial crisis well. However, overall the financial sector
has seen too many cases of over-optimistic valuations leading up to
the current financial crisis,” commented the chairman of the IAIS’s
technical committee, Al Gross.

He continued: “Accounting arbitrage, with the
accounting rules changing every few months, is too tempting in
difficult times.

“We believe the time is ripe to develop a
single set of converged accounting standards for financial
institutions.”

 

PENSIONS

Activity slides in UK buyout
market

Activity in the UK’s pension
buyout/buy-in market decreased appreciably in the first quarter of
2009 with total deals amounting to £879 million ($1.4 billion),
reveals data from actuarial consultancy Hymans Robertson.

Indicative of the sharp slowdown, insurance
broking and risk management service provider Aon reported
buyout/buy-in activity of £1.5 billion in the first quarter of 2008
and £8.2 billion for 2008 as a whole.

In total 43 buyout/buy-in deals were executed
in the first quarter of 2009, with Legal & General maintaining
its leading market position with 25 deals worth a total of £485
million.

This compared with a total of £1.82 billion
recorded by the UK insurer in 2008 as a whole.

Buyout specialist UK-based Pension Insurance
Corporation was in second position with a single deal worth £230
million, the largest recorded in the first quarter of 2009.

Of a total of 11 participants in the UK’s
buyout market, only five secured deals during the first quarter of
2009.

 

COMPANIES

Goodbye Norwich
Union

On Monday 1 June Norwich Union (NU)
officially adopted the name Aviva, marking one of the most
significant steps in UK insurer Aviva’s strategy of having a single
brand in all its 28 global markets.

“A consistent, recognisable name and branding
across its markets around the world is an important part of Aviva’s
strategy to succeed in an increasingly competitive and global
marketplace,” commented Aviva’s CEO Andrew Moss.

NU’s name change marked the demise of a
brand-name dating back to 1797 when the insurer was founded as
Norwich Union Society for the Insurance of Houses, Stock and
Merchandise from Fire.

Outside the UK, Aviva’s Irish unit Hibernian
Life & Pensions and its Polish unit Commercial Union Poland
will complete the name change to Aviva in 2010.

Aviva’s chief marketing officer Amanda
Mackenzie, said benefits of the unified global branding strategy
were already being seen in the form of lower marketing and
sponsorship costs.

 

MARKETING

Allianz extends Formula One
sponsorship

Formula One (F1) motor racing has
had its fair share of problems this year but at least one positive
piece of news has come in the form of Allianz’s decision to extend
its support for the sport until the end of 2010.

According to Allianz its sponsorship consists
of a contract for trackside branding, an official global
partnership with Formula One and a team partnership with AT&T
Williams.

“Extending our partnership clearly underlines
our long-term commitment to Formula One,” said Steven Althaus,
Allianz senior vice-president global market management.

“It is a perfect platform to reach millions of
people worldwide every race weekend.”

Allianz entered the F1 arena via a team
partnership with Williams in 2000. In 2002 it extended its
involvement through on-track advertising and in 2006 through pit
lane branding.

Allianz’s decision is in sharp contrast to
rival ING Group which announced in February that it would not renew
its three-year sponsorship agreement with Renault F1 when it
expires at the end of 2009.

 

LIFE SETTLEMENTS

European Life Settlement
Association launched

With little of the fanfare that has
accompanied development of its US counterpart, Europe’s life
settlements market has grown into a market with total assets of
€9.5 billion ($13 billion).

To an extent the European market’s low profile
has resulted from the absence of a representative industry body,
something that changed in May with the launch of the European Life
Settlement Association (ELSA).

“An important part of ELSA’s role in
overseeing the European life settlement market will be to educate
and inform investors in both the retail and institutional markets,”
explained the new body’s co-deputy chairman Richard Morris, an
actuary at German bank Commerzbank.

“Currently, too much time is spent sourcing
information on life settlements and checking its accuracy,” Morris
continued.

“ELSA will aim to produce regular and accurate
information on products and markets in an independent manner, so
that we promote fairness and transparency for the life settlement
market across Europe.”

ELSA’s other co-deputy chairman, Patrick
McAdams, investment director of UK life settlements specialist
Surrenda-link Investment Management, noted that the new body has
received widespread support from industry leaders including Doug
Head, executive director of the US Life Insurance Settlement
Association.

Head is one of the 10 members of ELSA’s
steering committee.

 

DEVELOPING MARKETS

Aviva’s China strategy achieves
a key goal

UK insurer Aviva has entered the
final phase of its 10x10x10 China Growth Strategy with the opening
of an office in China’s Hubei Province by its Chinese joint venture
(JV) life insurer Aviva-Cofco which now operates in 10 provinces
and has a total of 40 city branches.

The growth strategy began in 2003 with the
opening of Aviva-Cofco’s first office in China at which stage its
set a target of establishing branches in 10 target provinces and
achieving an average 10 percent total market share in new business
premiums generated by foreign insurers by 2010.

According to Aviva, Hubei is China’s
10th-largest province in terms of GDP and currently has low levels
of insurance penetration.

Established in 2002 as a JV between Aviva and
China Cereal, Oil and Foodstuff Group, Aviva-Cofco reported premium
income of CNY3.85 billion ($560 million) in 2008. This ranked it as
the second-largest foreign life insurer in China.

 

BANCASSURANCE

India moves to liberalise bank
channel

A more liberal regulatory
dispensation is potentially in the making in India’s bancassurance
market, in which banks are currently limited to forming agency
distribution agreements with only one insurer.

Responding to requests from numerous life and
general insurers and banks the Insurance Regulatory and Development
Authority (IRDA) has appointed a committee to investigate
regulatory change that would enable banks to form alliances with
more than one insurer.

The committee will also investigate the
possibility of separate regulatory requirements for the
bancassurance channel.

Seemingly well disposed to a liberalisation of
the market the IRDA noted that Indian banks’ extensive branch
network could be used more effectively to expand insurance
penetration.

The seven-member committee comprises one
representative from the IRDA, five current and former insurance
industry executives and an executive from consultancy Watson
Wyatt.

 

RISK MANAGEMENT

Aegon opts for solution from
Algorithmics

In a move aimed at enhancing its
risk management capabilities, Dutch life insurer Aegon has selected
Algo Risk, a risk and capital management solution developed by
Canadian risk management software and service specialist
Algorithmics.

Commenting on Algo Risk, Mike Dorsel, Aegon’s
vice-president, economic framework integration, said: “We were
looking for an industrial strength, enterprise-wide risk platform
to implement portfolio replication for Aegon worldwide.”

According to consultancy Watson Wyatt
portfolio solutions replicates, as closely as possible, the value
and market sensitivity of a portfolio of insurance liabilities in
different economic scenarios.

Replicating portfolios can also provide
valuable information on the nature of financial exposures in
insurers’ insurance portfolios and enable swifter production of
risk-based capital assessments.