After a dark year and a half, the life insurance industry is financially stronger with sales showing signs of an upswing, according to a panel brought together by Guardian Life Insurance Co. of America, New York, detailed.
The panel included remarks offered by Robert Broatch, executive vice president and chief financial officer of New York-based Guardian Life; Joel Levine, the life insurance team leader and senior vice president with Moody’s Investors Service, New York; and, Michael Ferik, senior vice president, individual life with Guardian.
Levine says that life insurers’ fundamentals improved enough to upgrade the industry to ‘stable’ in May of this year from a ‘negative’ outlook that had been put in place in September 2008. But the impact of the crisis has shifted the ratings distribution of 53 groups to ‘A’ from ‘AA’, he noted. Even so, life insurers are replenishing their balance sheets, he added.
Levine discussed how some stock companies depending on independent producers shifted to products such as variable annuities with living benefits and universal life contracts with secondary guaranties. These products increased companies’ risk, he said. While pricing has been changed, there is still legacy business creating risk and creating volatility.
Companies’ levels of capital are at a historic high, he continued, with the average risk-based capital in the Moody’s universe at 450 percent, an ‘AAA’ level. And, he added, capital formation continues to improve. However, there will be more volatility associated with capital, Levine continued.
Guardian’s Broatch said the company decided to maintain an ‘AA’ rating in order to have both a strong rating and increased financial flexibility. Later, during a question and answer period, Broatch said that the company’s investment team sees an opportunity to take advantage of good prices and add commercial real estate investments to its investment portfolio. He noted that the focus was on commercial and not on residential real estate and said that currently, there are virtually no subprime investment holdings in the company’s investment portfolio. He added that Guardian does its own research on potential opportunities.
The improvement detailed by Levine was supplemented by a Guardian study which indicated that those under 40 were more likely to take actions to prepare for the purchase of life insurance. For instance, the under 40 age group had a 10 percent better response rate than the 40+ group when asked whether they spent a lot of time considering the purchase of whole life (43% to 33%.) Guardian’s Ferik said. The responses of participants in the survey suggest that the younger group is more concerned about stability and guaranteeing protection, he added. Ninety-four percent of the under 40 participants said that they would do everything possible to be financially secure compared with 76 percent for the older group. Seventy-six percent of the younger group emphasized the importance of being debt free compared with 63 percent for the 40+ group.