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…

PENSIONS

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.

ANNUITIES

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.

COMPANIES

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.

INDUSTRY TRENDS

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.

INDUSTRY TRENDS

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.

REGULATORY

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.

EQUITY RELEASE

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.

INDUSTRY TRENDS

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.

COMPANIES

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.

HEALTH INSURANCE

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.

COMPANIES

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.

COMPANIES

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.