Universal life: policy size increases in the second quarter

By Alain Thériault | September 25 2010 08:22PM

In 2010, people started paying excess premiums into their universal life insurance policies again, and the average policy size has increased since 2009. These factors have pushed up the average annualized premium for a second consecutive quarter.

At the time this magazine was going to print, the Life Insurance Marketing and Research Association (LIMRA) was still working on their quarterly report detailing individual life insurance sales for the second quarter of 2010. However, LIMRA agreed to share some preliminary data with The Insurance and Investment Journal.

The LIMRA research shows an increase in the average annualized premium paid into universal life insurance (UL) policies. In the second quarter of 2010, the average annualized premium increased by 5% compared to the same quarter of 2009. For the first half of 2010, the increase was 8% higher than in the first half of 2009.

"There was a bit of a decrease in the size of universal life policies last year, but it turned around in 2010," comments Karen Terry, Manager of product research at LIMRA. In 2009, the average policy size had decreased by 7% compared to the same period in 2008.

In addition, excess premiums paid as an investment in UL polices rose by 44% during the first half of 2010. Ms. Terry revealed that the average amount of coverage purchased in UL policies had also increased, but could not provide exact figures.

All of the insurers surveyed by The Insurance and Investment Journal reported similar results to those announced by LIMRA. At Industrial Alliance, for example, excess premium deposits increased by 121% in the second quarter of 2010 compared to same quarter last year.

"Individual investment management has taken off. People are interested in saving again, and UL is regaining its place as an investment strategy," says Marie-Elaine Gaudreault, Director of product development and training, insurance and individual annuities, at Industrial Alliance.

At Empire Life, policyholders bought 30% higher amounts of UL insurance protection in the first half of 2010 than they did in the first half of 2009. "From January first to the end of June, the average UL case was bigger than last year during the same period," says Peter Wouters, Director of tax and estate planning at Empire Life.

Steven Parker agrees that the industry has seen a revival of consumer confidence in the markets. "Money and large scale sales are back," says Mr. Parker, who is Assistant Vice President, life product and marketing, individual insurance, at Manulife Financial.

This is certainly the case as far as excess premiums are concerned, so much so that the insurer has developed a new product aimed specifically at the investment market. In Ultravision, a simplified product, the client only has to decide how much to invest. Depending on monthly investment level chosen by the customer, Manulife will adjust the amount that must be deducted in order to cover the cost of insurance. This deduction is made at a guaranteed rate, based on the rate of return earned in the policy's investment accounts.

Joe Kordovi, Vice President and Pricing Actuary for life insurance products at Transamerica Life Canada, agrees that customers now have more money to invest. He believes that people want out of the guaranteed investment certificates (GICs) they fled to during the crisis, and which earn almost nothing.

"Interest rates are historically low, so investors are opting instead for investment portfolios. Over the long term, the performance of these portfolios has consistently outperformed GICs," he says, and points out that UL has the flexibility to offer just these kinds of investment portfolios.

Prudent investments

Even if they have more money, customers are investing with caution. Insurers are seeing more conservative investment options than before the recession. At Manulife, Mr. Parker notes that a large portion of the new money paid into UL is going into fixed income options.

At Empire Life, Mr. Wouters has also observed a return to safer investment options. "Money is back in more secure investments. GICs get the most money," he says. "We've seen 57% of UL business going into term deposits and 36% into index investment options [as of June]".

Sun Life Financial has found the same thing. Since last year, the insurer has noticed that permanent insurance products, including UL, have regained popularity. The insurer's Regional Vice President for Quebec, Stephane Vigneault, says that this desire for security has kept product sales strong despite the financial crisis.

"The industry is now positioning UL more conservatively than in the first decade of the 2000s," he adds. "People use the product for the insurance protection and invest more in guaranteed interest accounts, while up to the mid decade, the deposits were going into stock market index options or mutual funds," he says.

For others, the excess contributions remain fairly well distributed across the various investment options they offer in their product. This is the case at both Industrial Alliance and Great-West Life.

Saundra Edwards, Assistant Vice President, individual life insurance marketing and product development for Great-West Life, Canada Life and London Life, says that in 2009, a larger portion of UL deposits were flowing into guaranteed investments, but the situation has changed in 2010. "It's going back to the standard this year," she says. "We like to see a nice cross among our investment options."

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