“Quality over quantity” is the mantra of smaller insurers these days, as they remove underperforming products from their shelves and focus on their best-selling product lines.
“For smaller insurers, being generalists is becoming increasingly difficult,” says John Aiken, vice president of global research, Canadian financials, in Toronto with Barclays Capital, a division of London-based Barclays Bank PLC. “Especially when they don’t have the scale or large distribution to keep their fees competitive with the bigger players.”
As a result, Standard Life Assurance Co. of Canada, the Montreal-based subsidiary of Britain-based Standard Life PLC, and Transamerica Life Canada, the Toronto-based subsidiary of AEGON NV, a life insurance conglomerate based in the Netherlands, both have narrowed their business focus.
In early January, Standard Life Canada exited the individual life insurance and critical illness markets in Canada and has repositioned itself as a savings and investment company. The firm had been mulling shutting down its life insurance business since 2005.
Then, later in January, Trans-america announced its decision to stop selling its guaranteed income products in order to focus on the protection side of its business.
Weak sales volume has led both insurers to exit parts of their businesses and become more specialized. An insurer needs substantial sales volume to justify manufacturing certain types of high-end products that come with lifetime guarantees, such as those provided in whole life insurance policies or segregated funds with guaranteed minimal withdrawal benefit options. When sales volume is lacking, the insurer doesn’t have a large enough client base over which to spread the payout risk.
Transamerica’s decision to leave the guaranteed income product business and focus on the life side, where it sees greater sales, means the amount of capital the company needs for reserves to support new policies has been greatly reduced, says Aiken: “It’s an effective way of reducing [reserve] risk in a very competitive environment.”
On a larger scale, the parents of both firms have been assessing the use of their capital worldwide, adds Byren Innes, senior vice president and director with Toronto-based insurance consultancy NewLink Group Inc.: “We are now seeing actions locally that reflect the strategies parent firms are mandating globally.”
As for Transamerica, Pierre Vincent, the firm’s senior vice presi-dent of product strategy and business profitability, says: “We are already one of the top players [on the life side] in the market. And by sharpening our focus, we are free to keep growing in this direction.”
According to NewLink’s data, Transamerica ranks seventh in life insurance sales in this country. But sales of its seg funds aren’t even on the radar. In the nine months ended Sept. 30, 2011, Transamerica Canada produced $526 million in gross life premium revenue vs $179 million in new deposits for seg funds.
Transamerica has plans to enhance its life insurance lineup by adding features to existing products and to improve its financial advisor tools, including LifeScripter, an interactive software program that helps advi-sors and clients map out clients’ lifetime insurance needs.
“The service we provide to advisors is what makes us strong on the life side,” says Vincent. “We want to keep making it easier for [advisors] to do business with Transamerica.”
As for managing general agencies, they are happy to see the insurers cut their underperforming products. MGAs now can do a better job of educating their brokers on what each carrier does best, says John Lutrin, executive vice president and chief marketing officer with Woodbridge, Ont.-based MGA Hub Financial Inc.: “The more [insurers] specialize, the easier it is for us to relay that information.”
For Asher Tward, vice president, estate planning, with Toronto-based TriDelta Financial Partners Inc., Transamerica’s decision to get out of the seg fund business is a relief: “Over the years, [Transamerica] has really cut back on the safety features. If it is going to keep stripping down the product, it’s best not to offer it at all.”
Seg funds have been burdensome for Transamerica since 2000, when the stock markets crashed. Then, in 2008, the financial crisis hit and parent AEGON saw its credit rating revised downward because of its large seg fund obligations. At that point, Transamerica had revised its seg fund lineup and raised its fees for Five for Life, a seg fund with a GMWB.
Transamerica will continue serving its existing Five for Life contracts, which includes accepting additional deposits of up to $25,000 for the remainder of 2012. It will stop all new sales of its other investment products, and additional deposits into those seg funds will be capped at $25,000 in 2012. IE