Safer products, a “Moderate Credit Positive,” Moody’s Says

Life insurers are playing it more cautious with the type of product liabilities that they are taking on, a shift that Moody’s Investors Service, New York, says is “a moderate credit positive.”

In its Weekly Credit Outlook Moody’s Neil Strauss, a vice president-senior credit officer, describes findings in both a survey conducted by Guardian Life Insurance Company of America, New York, and data gathered by the Life Insurance Market Research Association (LIMRA), Hartford, Conn.

The Guardian study conducted during third quarter 2010 found that sales of traditional whole life insurance surged compared with other types of insurance while the LIMRA data shows whole life sales up about 20 percent so far this year, a rate that is far exceeding other products. LIMRA found that whole life represents over 30 percent of life insurance sales, Strauss notes. The sales increase is a credit positive for insurers, he adds. Strauss goes on to say that mutuals stand to benefit the most from this trend and because of their higher ratings have enjoyed both a flight to quality during turbulent economic times and now are enjoying renewed growth in their “flagship product.”

The new sales patterns are “credit positive” because they reduce the liability of insurers since whole life displays less volatility and higher retention rates than other insurance options.

Moody’s also noted other trends toward safety including the “de-risking of variable annuity guarantee products” and lower sales of investor-originated life insurance (IOLI) to senior citizens, both of which it calls “positive developments.”

Strauss points out that the Guardian survey shows greater interest among younger buyers, a shift which he writes “should be credit positive as mortality, lapse, and reputational risk should be lessened and be more in line with traditional expectations.”

However, Strauss cautions that in spite of lower insurer product risks, “trends can change quickly” and a sustainable recovery could reverse the shift to less risky products.