The standard life assurance Co. of Canada, the Montreal-based subsidiary of the eponymous Britain-based insurer, has decided to leave the individual life and health insurance market. The Canadian insurer says it instead wants to move more aggressively to build its wealth-management business.
As of Jan. 1, 2012, Standard Life will stop selling its life insurance and critical illness products — universal life, whole life, term and critical illness. Although the firm will continue to service its existing individual insurance clients, it will concentrate in the future on its long-term savings and investment businesses, including both individual and group markets.
Standard Life also will continue to play an active role in group insurance products, such as benefit plans for large companies.
Standard Life has been considering this change since 2005, when the company announced it would focus on savings and investment products, says Sylvain Messier, vice president, strategy and development, at Standard Life. “This change has been in the works for some time,” he says, “as we repositioned ourselves to focus on products that will sustain our long-term growth.”
With a huge portion of the global population heading for retirement at a time when financial markets around the world are in turmoil, there is a big opportunity for Standard Life to help its clients with investment products that come with guarantees — such as annuities and segregated funds — according to David Nish, CEO of Standard Life PLC, the parent firm: “There are a lot of questions on clients’ and advisors’ minds about what their cash flow in retirement will look like. We want to remove the volatility factor in their investments.”
To address the growing demand for products that offer financial security, the Canadian subsidiary had revamped its seg fund lineup earlier this year, adding the Lifetime Income Series to its Ideal Segregated Fund lineup. The new funds give clients the option of turning their seg funds into an annuity.
There are changes in the group insurance plans as well. For example, Standard Life is adding a lineup of socially responsible investing funds to the products it offers through its group pension plans. Says Messier: “More clients are looking for socially responsible ways to invest, and we wanted to meet that need.”
The changes are not likely to have a significant impact on insurance advisors in general, given that individual products were not a major item in the company’s product lineup. Says Sam Albanese, 30-year insurance sector veteran and program co-ordinator of the financial services practitioner program at Seneca College of Applied Arts and Technology in Toronto: “It seemed to me as though [Standard Life was] in the individual market just to maintain a presence, as opposed to really putting in the resources to make it grow.”
Standard Life’s individual insurance business only accounts for 3.5% of its $5 billion in total premiums and deposits.
Although the decision may seem immaterial to Standard Life’s books, it is significant, in that it highlights the focus that Canadian insurers now are placing on wealth management, according to John Aiken, vice president of global research, Canadian financials, for Barclays Capital in Toronto, an investment-banking division of London-based Barclays Bank PLC.
“Domestically and globally, we have seen interest rates fall,” says Aiken. “And the shift in the economics of supplying individual insurance has caused many Canadian insurers to put a renewed focus on wealth management. Standard Life has taken this to the extreme.”
As yields on long-term government bonds continues to fall and the capital reserves on individual insurance products become increasingly expensive to carry, more insurers are likely to follow in Standard Life’s footsteps, says David Hughes, senior vice president, Canadian financial institutions, for Toronto-based credit-rating agency DBRS Ltd.: “If smaller insurers don’t have the business volume or can’t raise prices high enough to make individual insurance profitable, they may also have to exit the business.”
For insurers to maintain their capital requirements, they typically will invest in conservative investments, such as 30-year Government of Canada bonds, to match the length of their long-term liabilities. If interest rates don’t improve, the insurers that opt to stay in the individual insurance business are likely to reduce the number of products they offer, says Albanese: “Low interest rates have pushed players such as Standard Life to figure out what products they are really good at and drop the rest.”
Some insurance sector analysts predict that Standard Life eventually will sell its remaining individual life insurance business. IE