Timothy C. Pfeifer, FSA, MAAA
Pfeifer Advisory LLC
June 7, 2011
Although industry weathered
crisis well generally, focus now
on capital more than
profitability.
Innovation took a backseat over
the past few years, but is
returning.
Single most important driver of
future product direction is
interest rate levels.
Some carriers interested in
acquisitions of blocks, not
carriers.
Impact of European accounting
regime on U.S. carriers’ views of
risk.
Other Themes – Speed to Market, Process versus Price, Market
Demographics
2
Rates
Profitability
Trend will be
higher rates at
most cells, as
long as
interest rates
are low and
before PBR
Thin profit
margins –
conceded to
be loss leader
for many
carriers;
6-7% IRRs
Twenty-year Term will
still be linchpin
Reinsurance
Reserve
Management
More Simplified
Issue
Return to
roots as
mortality
smoother, not
capital/profit
leverage
Term UL
approach will
be short-lived;
limited
financing
available
Higher Average
Size
3
• Fastest growing life product
will continue gathering
market share
• New products will feature
stronger death benefit
guarantees and survivorship
versions
• New carriers entering the
business, and more to come
• Rainbow/look back versions
popular
• Viability enhanced due to
verdict on SEC Rule 151A and
low interest rates
• Efforts to define illustration
standards proceeding, albeit
slowly
4
Growth will be
moderate, limited
to a small number
of carriers
Annuity/LTC
Combos will show
very gradual sales
traction, but longterm prognosis is
strong
Resolution of
some remaining
tax issues will
help success of
rider
True LTC benefits
require all
infrastructure and
regulatory
elements as
‘True’ LTC
Distribution
comfort levels
and views toward
LTC will be key
hurdle – lack of
re-commissions
5
No-Lapse UL
Current Assumption UL
• Still will be dominant UL
• Operating in a gray area
• Interest rate rising helps (and PBR)
• Price trend is higher
• Soft death benefit guarantees
• Higher interest rates needed
Variable UL
• Product in transaction
• Sales and market players dropping
• Indexed UL-type parameters needed.
6
Whole Life
•
•
Continued domination by mutual carriers
Tough competitor as long as interest rates
low
Life Settlements
•
•
Rebound and expansion of market
Disclosure requirements create greater
awareness
•
Return of substandard charges, modal
loads
Income stream death benefits
Charitable/College Funding Kickers
Features
•
•
7
Importance of IR Environment
• Sales follow mid-term rates
• Steady drops over last year,
recent climb
The Future
Reaction Steps
•
•
•
•
Bonuses
Fewer CD annuities
Lower comp (spread)
Market Value Adjustments
• Lower minimum crediting
• European carriers re-assess
• Interest Index Linkages
8
Recent Events
Future Events
Sales strengthening after
151 death
New indices and approaches
to crediting interest
Low volatilities/low
interest rates favor FIAs
Some carriers to offer
registered versions
Banks warming to FIAs
Average comp tracking lower
GLWBs driving market, but
underpriced?
Participation rates returning
9
Market
Still Led by
GLBs and
will
continue
• De-risking down
to trickle
• Lack of Scale
led to departures
• ITM-ness
dramatically
reduced
• Rating Agency
focus
• Asset Allocation =
control device
What’s Next?
Recent
Events
• New designs,
fewer asset
options
GLBs on Managed Accounts, Funds
Reductions in 12 b-1 fees
Gradual pick-up in A share sales
10
Deferred Income
Annuities
:
Slow traction, success more likely for higher
rated carriers
Single Premium
Immediate
Annuities
:
Key is more comp and liquidity (MVA); until
then, a few carriers dominate; impaired SPIAs
Indexed SPIAs
:
Appeal in low rate environment; position as a
portion of retirement solution
All forms of income annuities likely to be impacted by new
payout annuity mortality statistics.
11
Timothy C. Pfeifer, FSA, MAAA
E-mail: tpfeifer@pfeiferadvisory.com
www.pfeiferadvisory.com