Industry enjoys solid sales and steady recovery

By Alain Thériault | April 12 2010 04:08PM

Sales statistics indicate growing strength in the life insurance sector: sales of several products rebounded in the second half of 2009, and the trend is continuing this year.

LIMRA International's 2009 reports confirm the vitality of the Canadian industry in terms of new premium sales. Term insurance, whole life and living benefits showed excellent growth. Even group insurance grew despite an economic climate that included significant job losses. The exception to the positive results was universal life insurance (UL) which saw a sharp sales decline over the year. However, by the end of the year, UL sales were on the rise.

By late 2009, it was clear that an economic recovery was taking shape in Canada, LIMRA wrote in its report Canadian Individual Life Insurance Sales, Annual 2009. "The country underwent a gain in consumer confidence, growth in GDP, and increases in stock market averages. Individual life insurance sales experienced the strongest quarterly results for the year, with a 7% increase in annualized premium for the fourth quarter 2009. For the year, sales were up slightly, with a 2% increase in annualized premium. $905 million in new annualized premium were produced in Canada in 2009. In terms of policies, total sales were up 4% in 2009 from 2008," the report notes.

Universal life

Sales of new UL premiums dropped by 7% in 2009 compared to 2008. This decline reached 9% when the investment portion (excess premium) is included in UL sales growth. LIMRA observed an improvement in the fourth quarter, when new UL premiums rose to the same level as during Q4 2008.

Whole life insurance was the star player in 2009: premiums grew by 10% over 2008 (See pages 6 to 16, Whole life sales climb as Canadians seek security). Term insurance, including T10, T20, T100 and all other term products, also rose sharply. New premiums advanced by 7% in 2009 compared to 2008. Term insurance also experienced the strongest rise in new premiums in the fourth quarter.

In addition, sales of whole life and term insurance premiums took a bite out of UL, whose insurance sales market share fell from 41% in 2008 to 37% in 2009.

Sales results from the first few months of the current year show a continuing growth trend, MGAs told The Insurance and Investment Journal. For Groupe Cloutier, 2010 is off to a flying start. "After a slow start in 2009, sales picked up for all products in mid-year, and finished strongly, propelled by renewed consumer confidence," says Patrick Cloutier, Vice President, Sales and Business Development at the Quebec-based MGA.

Groupe Cloutier measures its business quotes each week. "Quotes are quite high these days compared with the same date last year," Mr. Cloutier points out. Segregated funds and other investment products are also selling very well, he continues.

Impressive growth

Asked if his firm has seen a sales recovery, Bruce Hammond, President of an Ontario-based MGA, Performins Canada, said: "Big time. Oh yeah, absolutely." Not only have sales recovered, he says, growth has been impressive. Basic life products are selling at 1.5 times the usual rate for Performins, while sales overall are up three times from normal sales levels. He credits the popularity of guaranteed withdrawal benefit products for driving much of this growth. "That's just a wonderful product."

Early last year, the situation was dramatically different. In January of 2009, Performins was only doing one-third of its usual level of business. Mr. Hammond said that during RRSP season 2009, none of his clients wanted to invest in the market. He was obliged to visit every client to convince them to do so. This RRSP season, however, client confidence was back to normal, he adds.

For Performins, sales began to look up in April and May of 2009. "By the fall of 2009 we were going gangbusters and it just hasn't stopped. It's been an amazing recovery."

Big cases, which he qualifies as having an annual premium of $50,000 or higher, have "really come back," he adds. "To be honest, we didn't write one big case between October 2008 and March 2009. Now we're back to normal at about 10 large cases per month and we just wrote our biggest case ever." An advisor working with Performins sold a corporate case with a $300,000,000 face amount, he elaborated.

Performins has contracts with 2300 advisors and has three branches, all of them in Toronto. Mr. Hammond observes that Performins' sales statistics vary widely from the industry-wide LIMRA results. For his firm, the sales decline was much steeper when the economy tanked than industry statistics indicate, while the recovery has been much stronger. "I don't know why that is," he adds.

Like consumers, advisors are also more confident. "Starting from the first few months of 2010, they are already selling more segregated funds than usual," says James McMahon, President of Quebec-based Force financière Excel. "Last year advisors were discouraged. This year they are enthusiastic."

Gaining momentum

The first products to benefit were the ones that had been the hardest hit by the crisis, including universal life. "It is definitely rallying. Sales are gaining momentum and we have seen some very fine cases, especially in terms of policies with annual renewable rates," he says. These policies, whose insurance cost is modest in the first few years, are often used for investment purposes.

John Lutrin, Executive Vice President of Hub Financial and Hub Capital, says "We're definitely seeing signs of renewed life."

During the financial crisis, the volume of life business was not so much affected as the nature of the business, he explains. There was an upsurge in term sales as cost-conscious clients looked for lower priced coverage. In the permanent category, universal life sales dropped while whole life sales climbed, driven by clients' desire for fully guaranteed products. "When times are volatile there is a flight to safety," observes Mr. Lutrin.

He now sees product sales returning to a "more normal mix" including the return of universal life sales. Large cases, which Hub qualifies as cases earning $10,000 in commission or higher, also dropped off during the crisis, but Mr. Lutrin says he is now seeing increased quoting and writing activity for large cases.

He says there is a return to the more "strategic" applications of life insurance where max-funded UL policies are once again more prevalent. He adds that corporate insurance applications such as buy-sell and  key person coverage is being seen more often than last year where cheaper family coverage was more the order of the day.

Although it's back to business as usual, Mr. Lutrin hopes one trend that developed during the financial crisis will take permanent root - the revival of whole life sales. Many advisors turned away from variable UL in favour of the guaranteed whole life product for their permanent option. "Hopefully the merit of whole life has remained even with a return to the UL product in more positive market conditions."

Mr. Lutrin adds that in terms of sales recovery, the most dramatic improvement has been on the investment side of HUB's business. "We're seeing huge responses in our funds' business. People are putting money back into the market." Both segregated fund and mutual fund sales are showing strength, he added. (See article pages 30 and 32, Long-term investments gain favour...)

Living benefits

Most living benefits products shone in 2009. For one, critical illness insurance (CI) products had an exceptional year despite the crisis, according to LIMRA's Canadian Individual Critical Illness Insurance Annual 2009 report. All products in this category are growing, from the more expensive fixed premium products to term products. New CI premiums advanced by 9% in Canada in 2009 over 2008. CI ended 2009 on a strong note: sales were 16% higher in the fourth quarter compared with the same quarter in 2008.

Disability insurance

Sales of disability insurance (DI) products lost ground, declining 6% in 2009 versus 2008, the Canadian Individual Disability Income Insurance Sales 2009 report concludes. High-end non-cancellable DI products showed a 7% decrease in 2009 over 2008. Targeting a clientele of professionals (doctors, dentists, lawyers, etc.), this product captured the lion's share of total sales but sales have stagnated for many years.

Cancellable DI products took a beating. This low-end product saw sales plunge by a staggering 54% in 2009. However, this product category represents only a tiny portion of total sales.

All bad news for DI? Not for sellers of the guaranteed renewable product. Sales for this affordable offering aimed at entrepreneurs and blue collar workers increased by 7% in 2009 compared to 2008.

Mr. Cloutier commented that guaranteed renewable DI products are booming at his MGA. "These products have become very prominent over the years because they are constantly being improved, while the non-cancellable product has remained pretty much unchanged." He adds that these simpler products have prompted a complete change in advisors' attitude toward the DI market.

Group still holding on

Many expected new group insurance premiums to be dragged in 2009 by the many layoffs in the Canadian manufacturing sector. It never happened. Group insurance premiums increased by 6% in 2009 versus 2008, to reach $1.2 billion.

The party may be winding down, though, because new group insurance premiums fell sharply in the fourth quarter of last year compared with the same quarter in 2008, by 12%. LIMRA points out that the decline in the fourth quarter was even more severe for sales to new clients. These sales plummeted by 28% between the fourth quarters of 2009 and the same period a year earlier.

The results for this quarter vary sharply between suppliers, LIMRA notes. Some even reported double-digit growth.

Small and medium suppliers experienced 5% growth in premiums compared with the same quarter of 2008.

Each niche in group insurance fared differently in 2009. Group premiums for life insurance rose by 35% over 2008, while long-term DI premiums were down 5%. Other health coverage (drugs, dental, etc.) advanced by 6%.

Twelve suppliers participated in the LIMRA group insurance survey, representing 95% of the market.