Several business lines suffer in 2013By Alain Thériault | March 17 2014 10:15AM
According to LIMRA’s latest sales reports, 2013 was not a great year for the Canadian insurance industry. However, several areas experienced a marked recovery in the fourth quarter.Critical illness insurance, segregated funds and group insurance posted lower results in 2013. Individual life insurance sales, on the other hand, remained steady.
Individual life insurance
The individual life insurance sector racked up $1.2 billion in new premiums and sold 747,509 new policies. This sector of the industry had posted dismal results in 2013 because of poor sales during the first two quarters. Sales measured by new annual premiums were up by 2% in 2013 compared to 2012. However, the number of policies sold still declined by 2% during the comparison period.
Once again, universal life (UL) sales were the main culprit, dragging down the overall results compared to the previous year. Measured by premium, UL sales retreated 17% in 2013 compared to 2012. The same is true for the number of policies sold. Whole life has been driving growth, with new premiums up by 14% and the number of policies sold up by 7% over the comparison period. New term insurance premiums increased by 4% between 2012 and 2013 while the number of policies sold increased by 1%.
Measured by new premiums, UL’s market share slipped to 23% last year, while it had been 28% in 2012. As for the number policies sold, it only had a 17% share of the market, compared to 60% for term insurance and 23% for whole life insurance.
Despite the declines, LIMRA says that universal life insurance’s fortunes are improving from quarter to quarter. “Hopefully the lower declines seen in the second half of 2013 will mark the beginning of a stabilizing UL market,” says LIMRA head of research Rob Kanehl.
While LIMRA mentions that there was a decline in universal life during the fourth quarter of 2013 without quantifying it, it does report that whole life increased by 28% when measured by new premiums and by 8% in terms of new policies sold in this quarter compared to the fourth quarter of 2012. “Two-thirds of carriers reported an increase, all in the double digits,” notes Kanehl. In the fourth quarter of 2013 total individual life insurance premiums also grew by 11%, but the number of policies sold decreased by 3% compared to the fourth quarter of 2012.
In Canada, critical illness (CI) insurance generated more than $111.6 million in new premiums, with a total of 103,213 policies sold. All indicators measuring sales of critical illness insurance products were lower in 2013 than in the previous year. New premiums were down by 8% while the number of new policies sold was down by 6%. “This was largely driven by large drops in permanent issues, which were down about a fifth from last year,” explains Kanehl. This is a reversal in a market that had been growing at all levels for many years.
The collapse of the permanent CI product market is considerable. Permanent sales measured by new premiums fell by 19% in 2013 compared to 2012, while the number of policies sold dropped by 22% over this comparison period. The damage is somewhat lower for period level products, where premiums decreased by 4% and the number of new policies declined by 8%. However, temporary CI products still have the wind in their sails, with premiums growing by 5% and the number of policies sold up by 6%.
In the industry it is well known that the increase in prices, driven by low long-term interest rates, is responsible for the significant decline in permanent product sales. “In 2012, sales in the second and third quarters were boosted by a ‘fire sale’ prior to announced price increases,” comments Kanehl. Limited period products were not quite so adversely affected, while renewable term products were spared.
Critical illness insurance, however, finished the year in good form. The three critical illness product lines experienced their best results in terms of new premiums in the fourth quarter of 2013. “A push in the fourth quarter is common from year to year,” notes Kanehl. “However fourth quarter 2013 results rebounded to pre-price-increase levels for both limited period level (LPL) and permanent issues,”
Registering $1.8 billion in sales during 2013, group insurance sales experienced a 25% decline over 2012 when measured by total premiums. Poor new sales were responsible for much of the decline. However, LIMRA notes that sales resulting from recurring premiums (renewals) increased by 5%. The survey is based on data provided by 17 carriers, and represents 95% of the market.
Excluding what LIMRA refers to as “non-traditional sales,” the decline in group insurance would have only been 7%. “Year-to-date losses of 25% in total premium were significantly impacted by several large single premium sales from one carrier that occurred in 2012,” explain LIMRA group insurance researchers Karen Fisherkeller and Anita Potter. In 2012, sales measured by total premiums increased by 43% compared to 2011. Growth had been more modest and stable during the previous three years.
Of total group sales in 2013, $159.6 million came from life insurance premiums, which is 6% less than in 2012. Long-term disability premiums were particularly low, bringing in $369.4 million, or 55% less than in 2012. Other types of coverage accounted for $1.2 billion or 12% less than 2012.
For their part, sales in terms (number of) new clients increased by 9% in 2013 compared to 2012. Three out of four providers reported growth in this area. Over the years, this measurement has posted less volatile results than premiums.
The market remains very fragmented and suppliers have had mixed fortunes. The LIMRA researchers point out that 9 of 17 carriers reported growth, and five of these reported growth that was higher than 15%.
In group insurance, this diversity in results may be attributed to large groups that change hands or the fact that some players are active in a niche that is more propitious than others. Thus, the small group market (less than 50 employees) has seen new clients grow by 13%, and premiums increase by 3% compared to 2012. The medium-sized group market (50 to 499 employees) has seen the number of new customers decrease by 24% and premiums fall by 7% during the period. Finally, the market for large groups (500 or more employees) experienced a 6% increase in new clients, but premiums declined by 38% compared to 2012. The LIMRA data for 2013 shows that groups with fewer than 20 employees and those with 200 to 499 employees were the paragons of growth.
The influence of major insurers in the Canadian group insurance market slackened in 2013. Desjardins Insurance knocked Green Shield Canada out of the top five in terms of market share in 2013. The other four insurers in this ranking were Manulife Financial, Sun Life Financial, Great-West Life and SSQ Financial Group. Taking all five of them together, their market share was 4% lower than in 2012. The three largest players held a 56% share of the market in 2013, down from nearly 63% in 2012.
Annuity sales are growing thanks to the contribution of the fixed annuity category, which includes immediate annuities and term deposits. In all categories combined (fixed annuities, segregated funds, and combination products), sales totalled $13.7 billion in 2013, making it the strongest year since 2010 ($15.9 billion). This segment of the industry reached its highest point in 2009, when annuity sales were $16.4 billion.
With $8.2 billion in sales, segregated funds fell by 9% in 2013 compared to 2012, giving way to fixed annuities, which posted sales of $2.5 billion for an 8% increase during this period. Sales of products that combine segregated funds and fixed annuity features declined by 10%, coming in at $3 billion in 2013.
Growth in fixed annuities took off in the fourth quarter of 2013, up by 19% compared to the fourth quarter of 2012. Segregated funds also ended the comparative period on a high note, with a gain of 2%. Only combination annuities declined, down 22% in the fourth quarter of 2013 compared to the same quarter of 2012.
The LIMRA data shows that sales in this sector are always higher in the first and fourth quarters of each year. It also shows that sales have been declining steadily since 2009, but did pick up in the fourth quarter 2013 compared to the trend in recent years. All products combined, annuities reached the $5 billion mark in the first quarter of 2010, but have not been able to reach it in any other quarter since. In the last quarter of 2013, annuity sales totalled $3.9 billion, which is the highest quarterly total since the fourth quarter of 2010. When the contribution of combined annuities is included, segregated funds accounted for $3 billion in the fourth quarter of 2013.