Repositioning by big-name US
insurers bent on focusing on their most profitable lines is the
order of the day, with MetLife exiting long-term care business and
Principal Financial health insurance. Joining them is Genworth
Financial, which has called it quits in the variable annuity
market, reports Charles Davis.
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Genworth Financial’s
much-ballyhooed exodus from the US variable annuities (VA) market
likely will ripple throughout the VA market, and could usher other
mid-tier players from the sector.
Genworth said it is discontinuing
new sales of retail VAs and group VAs, as well as sales of its
linked benefit product, which combines annuity and long-term-care
features. The insurer continues to provide fixed annuities as well
as other offerings, including life insurance, long-term care
insurance and wealth management. The company also continues to
offer linked benefit products that combine life and long-term care
insurance.
Genworth expects to record a pretax
charge of approximately $12m in the first quarter of 2011 for
severance of its VA business, outplacement support to assist
affected employees during the transition, and other costs
associated with this action.
“With this decision, we have taken
an additional step in advancing our specialist strategy to
concentrate on the markets, customers and products,” said Genworth
chairman and CEO Michael D Fraizer.
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By GlobalData“Looking ahead, Genworth continues
to help people meet their financial security needs by focusing on
key protection, wealth accumulation and mortgage insurance
offerings.”
Genworth’s VA sales have slowed
significantly in the last year. Currently, Genworth is ranked 25th
out of 37 insurers for new VA sales, according to research firm
Morningstar. That is down from 20th in 2009. To put that in
perspective, Prudential Financial, the number one VA seller, has
reported year-to-date new sales of $15.5bn.
In 2010, Genworth closed down its
Personal Income Design, Retire Ready Choice, RetireReady Extra,
RetireReady Freedom and Retire Ready Selections personal VAs, as
well as its ClearCourse group VA. In addition to retirement and
protection, Genworth operates two other business segments: US
mortgage insurance and international, and has a presence in more
than 25 countries.
Market
consolidation
Market consolidation in VAs has
increased dramatically over the last couple of years and looks like
it’s going to continue. ING Groep started 2010 with the launch of a
simplified variable annuity but shut it down in December, exiting
the market as it prepared for an eventual initial public offering
of its US insurance operations.
Meanwhile, Ameriprise Financial,
which is still in the VA business, has ended third-party
distribution of its own product, limiting sales of its VA product
to its own advisers. Reinsurers SCOR and Swiss Reinsurance have
retreated from the VA space as well.
Given the current economic
environment, carriers can be expected to resort to some reshuffling
of product offerings spurred by the pain of losses. Difficulties in
the workers’ compensation market, hampered by payroll reductions,
high unemployment and medical inflation, has also prompted exits
and capacity reduction.
American International Group, which
had to strengthen reserves in this line by more than $1bn during
the fourth quarter of 2010, has shed about $2bn worth of workers’
business in recent years and intends to continue to pull back from
the market. Less significant exits have included Cooperative Mutual
Insurance’s decision to sell its workers’ compensation book to
AMERISAFE.
But it is in the life insurance
market that the pace of change seems most remarkable. Another
significant market exit on the life side was MetLife decision in
the fourth quarter to withdraw from the long-term care insurance
market and Principal Financial Group’s exit from the medical
insurance business.
Three factors are conspiring to
drive insurers from the VA market: an expensive and time-consuming
fight for increasingly smaller market share, a realisation that the
effort and resources would be better used in a stronger line of
business, and an extended low-interest-rate environment.
Three major VA
players
Market share due to new sales has
gravitated largely toward three major carriers: Prudential
Financial, MetLife and Jackson National Life Insurance. Combined,
the three held 19.9% of VA market share in assets, excluding fixed
accounts, and added up to 40% of total market share in new sales in
the first nine months of 2010, according to data from
Morningstar.
By contrast, the bottom 10
companies accounted for less than 1% of total VA market share by
assets, according to Morningstar.
Some of the smaller players have
been focusing their efforts elsewhere. For example, Phoenix Life
Insurance, which ranks 30th among VA sellers in assets, has turned
its attention to fixed indexed annuities.
Genworth took a similar approach to
Phoenix Life when stepping out of VAs to concentrate on business
lines that already were successful, such as long-term-care
insurance. Among long-term care insurance providers, the insurer
ranks number one with some $1.9bn of premiums in force, according
to data from LifePlans.
Interest rates also could play a
major role in what insurers decide to do with their VA businesses.
Lifetime withdrawal benefits and guaranteed-minimum-income benefits
– guarantees common to VA riders – are sensitive to low interest
rates. Insurers that historically have not hedged much for interest
rate movements and now are looking to do so by buying interest rate
swaps are likely paying more for that protection in today’s
low-interest-rate environment.
Not everyone is fleeing the VA
market. Among the insurers that are looking for a turnaround is the
Hartford Financial Services Group, which is doubling its internal
sales force to support field wholesalers and enhancing its VA
product, Personal Retirement Manager.
The VA market overall is
surprisingly robust. Total fourth-quarter 2010 US sales of variable
annuities increased to $37.1bn, up 17.4%, according to Morningstar
and the Insured Retirement Institute. For 2010, total sales of
these stock market-linked retirement savings and income products
rose 10.3% to $136.6bn.
Year-end assets under management reached a milestone of just
more than $1.5trn, up 11.2% from year-end 2009 assets of $1.35trn,
and the highest recorded in nearly 20 years of asset tracking for
VAs.
