Strong growth continues for whole life products

par Donna Glasgow | April 12 2011 01:14PM

 Whole life insurance annualized premium in Canada was up 35% for the fourth quarter of 2010 and 27% for the entire year, according to statistics from industry research group LIMRA. Market players attribute this growth to a combination of continuing market uncertainty and demographics.

 LIMRA’s statistics, which were published in its Canadian Individual Life Insurance Sales Annual 2010 report, show that whole life growth far outstripped results for both term insurance, which was up 8%, and universal life (UL) insurance which grew by 14% in 2010. Whole life was also the only product line that saw an increase in the number of policies issued in 2010 at 1% over 2009, whereas universal life and term insurance saw declines of 4% and 3% respectively.

Due to its strong sales, whole life also grew its market share. "The persistent high sales of whole life resulted in a market share increase of three percentage points at the expense of term and UL," notes the report.

 Karen Terry, manager, product research at LIMRA and co-author of the sales report, says the upturn in whole life sales is related to the economic environment. “With the economic downturn, there is a real desire for stability and guarantees. Whole life is a steady product. It has the guaranteed premium and there has been a real flight to security over the past few years in terms of moving away from the more flexible UL products to whole life.”

She says when clients purchase whole life, they have a clearer understanding of what premiums they’ll be paying and the guarantees associated with the product than they would have with a more complex product such as UL.

She adds that the sales increase trend in whole life began a few years ago when economic conditions began to decline. The same pattern was also seen at the beginning of the decade. "The last time we had a recession, in 2001 and 2002, whole life had an uptick too. You tend to see this at times of economic decline."

Ms. Terry says that she thinks whole life will likely maintain its sales momentum this year, particularly because of the repricing that is currently underway in the universal life market (See The Insurance and Investment Journal, February 2011). Higher pricing is probably going to put some downward pressure on UL sales, she adds. “I think whole life sales will probably benefit from that.”

Quick success

The sales performance of the whole life market is attracting increased attention from insurers to the product category, adds Ms. Terry.

This is certainly the case for Sun Life Financial Canada. It launched two new whole life par products for sale in the independent channel in 2010. This marked a return to the par market for the insurer. It had withdrawn two par products in 2003 and until last year was only present in the whole life market with a non par product called SunSpectrum Permanent Life, which is sold through Sun Life’s career channel.

Paul Fryer, vice-president, individual insurance at Sun Life, says the company’s return to the par market has attracted tremendous interest and sales from advisors. In the first six months after their launch at the end of June 2010, the two products – Sun Par Protector and Sun Par Accumulator – brought in sales of $9 million in premium, mostly in the fourth quarter. "We were really delighted…sales were significantly greater than expected and we continue to enjoy that upward momentum."

Sun Par Protector product is specifically for clients looking for long term cash value and death benefit growth and interested in estate preservation. This is the best selling of the two products. "It’s our mainstream product," Mr Fryer says, adding that Par Accumulator is more of a niche product targeted towards small business owners or affluent individuals who may be interested in accessing their cash values, for example to bridge a retirement income gap or to meet the changing cash flow needs of a business. This product is available with a minimum face amount of $500,000, whereas Sun Par Protector is available at a minimum death benefit of $50,000.

During the fourth quarter, Sun Life’s new par products captured 8% market share when compared with sales for similar par products from London Life, Great West Life, Canada Life, Empire Life and Equitable Life, plus Manulife Financial’s non-par product that is similar to par whole life, says Mr. Fryer.  

Mr. Fryer says Sun Life re-entered the par market to fill a hole in the company’s product shelf. "We were seeing that Canadian consumers were demonstrating a renewed interest in participating whole life insurance. We’re listening…to what our advisors need to make sure they have a full suite of products to meet our clients’ needs."

Why then did Sun Life leave the par market in 2003? Mr. Fryer says sales trends favoured universal life back then and par whole life sales were shrinking rapidly. "When we looked at where sales were going, the interest rate environment at the time and the dividends scale…we made the decision to focus our efforts on building the rest of our products."

Now the situation has changed. "We see these traditional par whole life products as really resonating with clients, in particular the clients who are nearing their retirement years. So it is becoming more popular because of demographics. Individuals have some money that they want to put into a tax-preferred investment like participating whole life..."

What explains the rapid sales success of the company’s new par products? Mr. Fryer says Sun Life’s reputation, financial strength and advertising campaigns combined with product demand from advisors and clients are behind this "very warm reception into the market."

In addition, Mr. Fryer says that advisors know that Sun Life has a very long history in the par market dating back to the 19th century. He underlined that the company has about $16 billion in participating life insurance account assets and is servicing some 1.6 million par policy holders from Sun Life and three of its acquisitions: Clarica, Metropolitan Life, and Prudential.

Sun Life has high sales goals for its new par products. "We’re swinging for the fences. Our goal is to see how far we can take this."

Products in development

Unity Life of Canada is also increasing its focus on whole life. Brock Campbell, the insurer’s vice president, marketing, product solutions and group creditor business, says the company is aiming to add two new par products to its lineup by the end of this year, or early next year.

Prior to its acquisition by Foresters back in 2008, Unity Life was predominantly a term company without much of a presence in the whole life market, whereas Foresters had a whole life product, which hasn’t been touched in a number of years, Mr. Campbell explains. "So one of the things that Unity and Foresters are doing this year is to come up with…a couple of new products in the par market space." He adds that the development process is in the preliminary stages but one product will be a simplified issue par product and the other will be a more full featured par product.

This development plan is driven by both the opportunity in the whole life par market and today’s low interest rate environment, which diminishes the attractiveness of universal life as a tax shelter for clients and its profitability for insurers, he adds.

Competitive market

Since the 2008 market crisis, the whole life market has become increasingly competitive, he adds. "When the stock market crashed, I think you had a lot of people questioning whether universal life was the right product to be selling, simply because now you’re exposed to these incredibly low rates of return, so that’s one factor which turned people towards whole life…As well, I think some of the past benefits of overfunding in universal life are probably not as important as they were a number of years ago." For instance, tax free savings accounts, now give clients an alternative place to put their money and gain tax advantages, he points out.

Mr. Campbell points out that even in the whole life market, the market is mature. While 35% sales growth in the fourth quarter is a compelling number, one needs to get beneath that number to find out what’s really going on. "When you actually look at the numbers, what you see is in terms of policies issued, they’re essentially flat…which is indicative of a mature market."

The number that is increasing is the cost per thousand, meaning people are putting more money into their whole life plans, he underlines. It also indicates a movement to more limited pay plans as well, which would drive up the cost per thousand since these policies are paid up over a shorter period of time.

"What we’re seeing inside these numbers is a flight to safety. Consumers are looking at plans that are less leveraged, less dependent on the dividend scale..."

When the economy recovers, does he believe whole life will continue to maintain its strength? This is difficult to answer because of current market uncertainty, in particular about what impact the International Financial Reporting Standards (IFRS) will have on products. "Certainly you’re seeing a number of companies on the universal life side raise their rates. I have no idea whether that’s the end of it or whether there will be further rate increases. One would assume that this is going to have some impact on the brokers moving towards products like whole life."

Are whole life products likely to be hit by similar pricing increases as universal life? Mr. Campbell says he has not heard of any movement in whole life pricing and cannot even comment on Unity Life’s products since the company has just started a pricing review. But, he says the nature of level COI universal life is particularly impacted by long term interest rates. As well, UL clients are lapsing products less than anticipated when the rates were set. "So that is why I think you’re seeing more of a price movement on the universal life product."

Meanwhile, Sylvain Charbonneau, vice president, marketing and products at AXA Assurances, thinks that IFRS will have an impact on whole life and that the current sales strength may continue for the short term only. "IFRS rules are likely going to impact product design and prices mid to long term, therefore potentially slowing growth." (For more on this topic, see article, AXA aims for disciplined growth on page 10).

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