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Whole life continues to cushion universal life’s decline

By Alain Thériault | January 23 2013 09:38PM

As Universal life insurance sales continued to nosedive in Q3, dragged down by recent price hikes, strong whole life results fueled growth in the individual life insurance sector. The latest LIMRA report finds that new annualized life insurance premiums rose by 9% in the first nine months of 2012, compared with the same period in 2011. The number of policies sold climbed 6% during this comparison period.

This growth occurred despite a notable drop in universal life insurance premiums in the first nine months of 2012. During this period, premiums slipped by 14% (15% when excess premiums are included), versus the same period in 2011. Excess premiums are deposits that insured make in their universal policies as an investment. They are added to the premium on the pure insurance cost.

The number of new UL policies slumped by 13% in the first nine months of last year. “A third round of price increases hit the already struggling UL market, contributing to the downward slide in new sales,” LIMRA researchers Karen Terry and Rob Kanehl explain.

Vigorous new whole life insurance premiums, which soared by 32% in the first nine months of 2012, largely offset the decline in universal life premiums. Term life insurance was the main growth engine in terms of policies sold, with gains of 14% in the first nine months of 2012 (compared with 8% for whole life).

The two LIMRA analysts point out that the success of whole life peaked in Q3 2012, as growth of new premiums reached 41% compared with the same quarter in 2011. “In terms of raw numbers, WL has gained more than $2,000 in new premiums for every $1,000 lost in UL,” they say.

Since the 2008 crisis, universal life insurance has been steadily losing its market share of new premiums sold across Canada. Whole life was the prime share grabber: its guarantees appeal to insured spooked by financial market volatility. Term insurance took smaller bites of UL’s share.

In 2008, universal life captured 41% of new premiums, while 31% went to term insurance and 28% to whole life. In the first nine months of 2012, universal life generated only 28% of new premiums. Whole life’s share surged to 42% and terms’ share stood at 30%.

The plunge was particularly steep between 2011 and 2012. “UL market share has slipped 8 [percentage] points compared with the first nine months of 2011. It is the smallest piece of the premium market for the second consecutive quarter,” Ms. Terry and Mr. Kanehl point out.

The number of policies sold in the first nine months of 2012 paint a different picture. “The policy market shares for UL and WL are now equal at 21 percentage points each, with term representing the remaining 58 percent,” the LIMRA researchers note. Affordably priced, term insurance tends to outsell competing products.

Segregated funds and annuities down

Segregated funds revived in the second quarter of 2012 after a slow start. The third quarter, however, was marked by backsliding, LIMRA reports: new premiums for this product slumped by 13% in Q3 compared with the same period in 2011. Fixed annuities (term deposits and lifetime annuities) fell by 21%, whereas products that combine fixed annuities and segregated funds advanced by 12%.

Total assets for all these products nonetheless edged up by 2% in the third quarter 2012 compared with the previous quarter. They stood at slightly more than $119.4 billion. In the first nine months of last year, new segregated fund premiums lost 6% compared with the same period in 2011, at $5.9 billion. The same comparison shows a 22% decrease in new fixed annuity premiums during the same comparison period, which slipped to $1.5 billion. Combined products were down 11%. For all products combined, total sales in the first nine months of 2012 were $9.6 billion.

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