US retirement security takes a big hit… Sun Life talks up its growth prospects… UK consumers throw caution to the wind… Mixed signals from UK equity-release market… No problem in Thailand, stresses ING…
US retirement security takes a big hit
Slumping equity markets have taken a massive toll on US private and public pension assets with the year-on-year fall in total asset value rising from $1 trillion at the end of June 2008 to $2 trillion at the end of September. The third-quarter decline brought the total decline in value over 15 months to about 20 percent.
This bleak picture was presented to the House of Representatives Committee on Education and Labor (CEL) by Peter Orszag, head of the Congressional Budget Office.
Orszag emphasised that particularly hard hit were private sector defined contribution (DC) 401(k) and similar plans which are more heavily weighted towards equity than defined benefit pension plans. He noted that over two-thirds of assets in DC plans are invested in equities, directly or through mutual funds.
Commenting, the CEL’s chairman, Congressman George Miller, said: “It’s clear that retirement security may be one of the greatest casualties of this financial crisis.”
Already affected are contributions to savings plans. According to a survey conducted by the American Association of Retired Persons between 3 September and 21 September 2008, 20 percent of workers aged 45 and over have stopped putting money into a 401(k), individual retirement account or other retirement accounts.
Minnesota’s war against mis-selling
Minnesota Attorney General Lori Swanson has scored another success in her campaign to eradicate mis-selling of annuities to seniors in the state. In her latest victory, AmerUs Life Insurance Company (ALI) and American Investors Life Insurance Company (AILI) have agreed to allow up to 4,500 seniors to make claims for refunds totalling about $250 million.
The settlement with ALI and AILI, both units of UK insurer Aviva’s US unit, is modelled on settlements reached between Swanson and Equity Investment Life Insurance Company in February 2008 and the Allianz Life Insurance Company of North America in October 2007.
The Equity Investment Life settlement involved 2,400 annuity policyholders and the Allianz settlement 7,000 annuity policyholders.
A statement issued by Swanson’s office noted that the settlements with the three top sellers of equity-indexed deferred annuities in the US allow seniors to make refund claims without paying surrender charges or penalties on about 15,000 policies with an estimated value totalling $700 million. A fourth annuity mis-selling charge brought by Swanson against Midland National Life Insurance Company, the US’ fourth-largest seller of equity-indexed deferred annuities, is still pending.
Sun Life talks up its growth prospects
In a move aimed at increasing its ability to pursue market opportunities Canadian life insurer Sun Life Financial (SLF) has sold its 37 percent stake in mutual fund manager CI Financial Income Fund to Scotiabank in a cash deal worth C$2.3 billion ($1.9 billion).
“Sun Life is well positioned to take advantage of unprecedented opportunities existing within the global financial services sector today,” said Sun Life’s CEO Donald Stewart. “Unlocking CI’s value now provides Sun Life with enhanced firepower to aggressively pursue our growth objectives.”
SLF reported a net loss of C$396 million in the third quarter of 2008 compared with a profit of C$583 million in the third quarter of 2007. Total write-downs of $462 million were reported on holdings in Lehman Brothers and Washington Mutual, while losses on shares and other investments totalled C$500 million.
US individual life activity still falling
New individually-underwritten life insurance business in the US declined 4.4 percent in September 2008 compared with a year earlier, continuing a trend now approaching three years in duration, according to market analytical company MIB Group. The September decline brought the fall in new business for the first nine months of 2008 to 2.4 percent.
A bright spot in new business in September was in the 60 and over age group where, continuing a trend now evident for 18 months, activity was up 4.3 percent compared with September 2007.
The sharpest fall in new business was in the up-to-44 age group where activity in September was down 6.5 percent compared with a year earlier. In the 45-to-59 age group activity fell by 3.7 percent.
Canadian insurers fared better than their US counterparts with MIB reporting a year-on-year increase of 0.5 percent increase in new business activity in September.
UK consumers throw caution to the wind
When austerity hits it is not only spending on unnecessary luxuries that suffers but essential spending as well. This certainly applies in the UK, indicates a survey conducted by online product comparison service uSwitch.com.
The survey conducted between 27 August and 3 September 2008 found that an astounding 42 percent of consumers had cancelled at least one insurance policy or pension contribution in a bid to cut costs. This means that potentially about 19 million people have reduced their financial security, or eliminated it entirely.
Of those who scrapped insurance policies to cut costs, 15 percent cut their car breakdown cover, 15 percent their private health and dental insurance and 13 percent a life insurance policy. In addition, 12 percent of respondents reported having stopped making pension contributions.
Home contents insurance is the least likely to be cancelled with only 6 percent of respondents having done so. Mortgage payment protection was dropped by 7 percent of respondents, critical illness cover by 10 percent, travel insurance by 11 percent and pet insurance by 12 percent.
According to uSwitch.com 86 percent those who have cancelled insurance policies or pension contributions saved up to £50 ($77) a month while 10 percent saved between £51 and £100 a month.
FSA dishes out record PPI fine
UK bank Alliance & Leicester (A&L) has become the 18th company to be fined by the Financial Services Authority (FSA) for serious failings in sales of payment protection insurance (PPI). The fine of £7 million ($10.8 million) levied against A&L was the highest yet, eclipsing the previous highest fine of £1.09 million handed down to HFC Bank, a unit of UK bank HSBC, in January 2008.
According to the FSA, between January 2005 and December 2007 A&L sold about 210,000 PPI policies at an average price of £1,265 to customers seeking a personal loan.
The FSA noted: “There was a general failure by advisers to give customers details of the cost of PPI. In addition A&L sought to find reasons to sell PPI without properly considering what customers needed.”
In addition the FSA found that A&L did not make it sufficiently clear that PPI was optional and it trained its staff to put pressure on customers where they queried the inclusion of PPI in their quotation or challenged advisers’ recommendations.
The FSA said A&L has agreed to implement a “substantial and comprehensive customer-contact programme,” overseen by third-party accountants. A&L will also review any relevant rejected complaints and claims and pay redress to customers where appropriate.
Mixed signals from UK equity-release market
The UK’s equity-release market presented a mixed picture in the third quarter of 2008, indicates data supplied by industry body Safe Home Income Plans (SHIP). SHIP’s 22 members account for some 90 percent of the equity-release market.
Compared with the second quarter of 2008, the value of new business increased by 10 percent to £303.3 million ($475 million) while the number of new policies written was up 15.7 percent to 7,942. But perhaps more reflective of the weak residential property market, new business in the third quarter was down 6.8 percent compared with the third quarter of 2007.
Sales via intermediaries continued to account for the lion’s share of the market in the third quarter of 2008, with this channel accounting for £226.7 million in new business.
Demand for advice falls in the UK
Despite uncertain economic times fewer UK consumers are seeking the advice of independent financial advisers (IFA), indicate figures released by Unbiased a not for profit organisation promoting the IFA industry.
Based on what Unbiased terms the “top-10 advice drivers” 116,834 consumers sought the advice of an IFA between July and September 2008, a decline of 11.1 percent compared with the 131,439 consumers in the same period in 2007.
The top growth driver, personal retirement planning, saw an even greater fall of 16.8 percent – from 41,279 consumers to 34,363. Worse still, the number of consumers seeking advice on investments and savings slumped 22.4 percent, from 33,944 to 26,345.
Unbiased’s 29 sponsors include insurers AXA, The Hartford, Standard Life, Prudential, Aegon, Friends Provident and Canada Life.
Queue forms to refloat Yamato Life
Strong interest is being shown in the rehabilitation of Yamato Life, with two unnamed insurers and seven investment companies lining up to refinance the Japanese insurer which filed for bankruptcy on 10 October.
Failure of the 98-year old Yamato, which had debt of ¥11.5 billion ($115 million) in excess of assets, was the first since Tokyo Mutual Life Insurance filed for bankruptcy in 2001.
According to Japanese media reports, Yamato’s Takeo Nakzono president attributed the insurer’s failure to steep declines in the value of high-risk investments bought to enhance returns, including subprime mortgage-backed instruments. In total some 30 percent of Yamato’s assets were invested in instruments of this nature and shares.
Yamato’s bankruptcy administrator is anticipated to announce the successful bidder for the insurer’s refinancing in early 2009.
Insurers join forces to combat fraud
Eleven UK health insurers have united to form the Health Insurance Counter Fraud Group (HICFG) in a bid to combat fraud perpetrated by health care providers and customers.
Included among fraudulent activities under scrutiny is: the billing by providers for services not actually carried out; charging for more complex services than were actually delivered (upcoding); charging for the same service several times and hiding it behind medical jargon (unbundling); and misrepresentation of facts – such as performing a cosmetic procedure such as breast enlargement and claiming that the treatment was for breast cancer.
The insurers pointed to a recent fraud case in which a doctor was found guilty by the General Medical Council of over-billing health insurers by £85,000 ($130,000) by charging for more complicated services than he was actually performing.
The HICFG initiative will receive a boost in 2009 when health care fraud experts from partner organisations in the US, Canada, South Africa, Australia and Europe will be invited to a symposium with the aim of taking the best practices from around the world and implementing them in the UK.
Medibank takes on Australian life insurers
With a membership base of over 3 million, Medibank Private ranks as Australia’s largest health insurer – a market position it intends to capitalise on with its entry into the life insurance market announced in October.
The move by government-owned Medibank followed a 12-month pilot programme the insurer’s MD George Savvides said had “demonstrated an appetite for life insurance products that are simple to purchase yet comprehensive in their coverage.”
He continued that when Medibank first contemplated offering life insurance it recognised a “significant gap” in the market.
“Existing life insurance offers tend to be either complex products sold through financial advisers, requiring inconvenient medical examinations, or extremely light-weight products with limited coverage,” said Savvides.
For its initial move into life insurance Medibank is offering a product with a maximum benefit of A$1.5 million ($1 million) with an optional permanent disability rider with a maximum benefit of A$1.25 million. No medical examination is required and, according to Medibank, paperwork is uncomplicated.
No problem in Thailand, stresses ING
ING Life Thailand (ILT) has acted to reassure customers of its financial stability in the wake of news that its parent company ING Group had received a €10 billion ($12.8 billion) capital injection from the Dutch government.
“Our business here is not affected at all. Rather, we have gained wider access to more money after the Dutch government threw a €10 billion lifeline to shore up the group’s capital position,” said ILT’s president and CEO Rajesh Sethi.
“We would like to stress that ING Life here is extremely well-capitalised and our solvency rate now stands over three times higher than legal requirements.”
Sethi also delivered an optimistic growth outlook, predicting that premium income in 2008 would increase 20 percent to THB2.1 billion ($50 million).
He stressed that predicted growth excludes premiums from sales through TMB Bank in which ING Group acquired a 30 percent stake in late-2007 for THB460 million. ILT formed an alliance with TMB in May 2008 and expects to generate up to THB1 billion in premium income from policies sold via TMB’s 470 branches during the first 12 months.
Established in 1998, ILT ranked seventh in Thailand’s life insurance market in 2007 based on first-year premiums.