Sales decline in second quarter in wake of tax law changes

par Alain Thériault | November 07 2017 07:00AM

Photo: Freepik

At $323 million, individual life insurance sales in Canada were down 15.2 per cent in Q2 2017, compared with Q2 2016, says LIMRA’s Canadian Individual Life Insurance Sales – 2Q 2017 report.

The report highlights the impact of the tax restrictions on permanent life insurance policies that took effect Jan. 1, 2017. The second quarter’s sales slump was preceded by strong sales in Q1 when many insurers enabled advisors to complete the sales of policies under the old tax rules. Q1 premiums grew to $553 million, versus $312 million in the same quarter of 2016 for a 77.3 per cent increase. This fire sale trend was even more pronounced in Q4 2016.

However, the fire sale was followed by a vacuum effect in the second quarter of 2017. The strong Q1 growth, though, led to the 26 per cent sale increase recorded for the first half of 2017, despite the lacklustre second quarter.

“The effect of the tax changes seems to have waned, with premium figures dropping against the same quarter in 2016,” report author Matthew Rubino observes. He adds that the effect of the first quarter was powerful enough to propel sales in the first six months of 2017 far beyond those of the corresponding period in 2016. “Though the next two quarters will likely see significant declines,” he says.

Results by product also differ noticeably between Q2 and the first six months of 2017. Sales in terms of new annualized universal life insurance premium sales dropped by 24 per cent in Q2 2017, compared with the same quarter of 2017. Yet in the first half of 2017, they were up 6 per cent, fuelled by the sales rush that marked Q1. UL sales totalled $62 million in Q2.

Whole life also declined in Q2 2017 by 21 per cent. In the first six months of the year they were up 45 per cent. Whole life insurance sales amounted to $162 million in the second quarter.

Meanwhile, term life insurance products experienced sales growth of 5 per cent, both during Q2 and the first half of 2017, versus the same periods in 2016. Term life insurance sales totalled $99 million in the second quarter.

Premiums and policies

Whole life insurance accounted for 60 per cent of sales generated in the first six months of 2017, in terms of new annualized premiums, at $527 million. Term ranked second with premiums of $189 million, for a market share of 22 per cent. Universal life was third with premiums of $161 million, equal to an 18 per cent share.

The number of life insurance policies sold in the first half of 2017 tell a different story. Term insurance dominated with 205,900 new policies, or 57 per cent of sales reported during that period. With 101,438 policies sold in the first half of the year, whole life ranked second with a 28 per cent share. At 54,396 policies, universal life brings up the rear, with a 15 per cent market share.

Meanwhile, the tax changes were a boon for the independent distribution channel. This network includes managing general agents, independent advisors and national accounts (insurance distribution via securities firms). In terms of new annualized premiums, this network saw sales advance by 36 per cent in the first half of 2017 compared with the same period of 2016, when the affiliated agency network grew by 7 per cent during this comparison period.

In the first half of the year, the independent channel saw vigorous growth of 61 per cent in whole life insurance sales. The affiliated network’s sales rose by 20 per cent in this sector in the same period, while universal life sales fell three per cent. 

The independent channel garnered 72 per cent of new premiums in the first half of 2017. Whole life sales accounted for over half of total sales for each of these networks, at 58 per cent for the independent network and 68 per cent for the affiliated network. Universal life insurance racked up 23 per cent of sales in the independent channel, versus eight per cent in the affiliated network.