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.
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.
“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 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.