Life Carrier’s Dilemma: Where to Put All that Cash?

Feature Article - Summer 2012 | By Andrew Singer

RECENTLY, American National Insurance Company (Galveston, TX) introduced a new term life product, ANICO Signature Term, with multiple level premium periods of 10, 15, 20 and 30 years as well as annual renewable term with accelerated underwriting.

David Behrens, American National Life Co.

A quandary

It’s an industry quandary: A lot of bonds bought 10 years ago for 5 percent to 6 percent are now coming due. What does one do with the cash? What happens if I invest the money and then interest rates go up? Will I have to take a markdown if I’m an insurance carrier?

A 1 percent drop in interest rates (assuming a 10-year duration on $1 billion) would mean a carrier using ‘mark-to-market’ insurance accounting principles would have to write down its portfolio $100 million.

Last year ANICO did $1.5 billion in annuities. This year it will do half of that—by choice. (They could do much more if they wanted.) But there is a dearth of “quality” places in which to invest those premium dollars, says Behrens, and he doesn’t see this changing any time soon. He can envisage the yield on 10-year Treasuries going as low as 1 percent to 1.2 percent before rates rise again. (They fell to 1.4 percent on July 23.)

Therefore, ANICO opted (instead of SPL) for a “true mortality play,” i.e., the new Signature term life insurance line, which has 48- to 72-hour turnaround on approvals with no medical exams (in most cases) and face amounts of up to $250,000 for ages through 65.

A lot of insurance carriers are struggling, of course, in the current LIRE, and some—e.g., Hartford, Sun Life, and John Hancock—have pulled out of the variable annuity market entirely. When Sun Life exited the VA market in December 2011, for instance, it said, among other things, that it wanted to pull away from long-dated guaranteed products.

The LIRE has had an impact on suppliers to the bank insurance/brokerage industry in other ways. Lincoln Financial’s indexed universal life product has become its fastest growing life insurance product in the bank channel, mainly because of the LIRE, according to Tom Tooley, head of Insurance Solutions Distribution at Lincoln Financial Distributors (LFD), the wholesale distribution subsidiary of Lincoln Financial Group (Philadelphia).

The indexed universal life product is really a hybrid product. If one imagines a life insurance risk spectrum with “absolutely guaranteed” products at one extreme and pure variable products at the other, then the indexed universal life (UL) product is somewhere in the middle. It has some guarantees but also offers some play in the equities market, a big draw at a time when 10-year Treasury notes were still hovering around 1.5 percent in July. It, along with guaranteed UL and variable UL, are the firm’s top life insurance products in the bank channel, where Lincoln is focused mainly on the mass affluent and high net worth customer segments. The firm’s financial institutions channel is now its fastest growing life insurance channel, Tooley told us.

Last year ANICO did $1.5 billion in annuities. This year it will do half that—by choice. There is a dearth of ‘quality’ places where insurers can invest those premium dollars. – David Behrens, American National Life Co.

Lincoln Financial, in fact, recently named Andrew DeLoreto national sales manager for its “newly created” financial institutions channel (within its insurance solutions distribution business), which includes banks, wirehouses, and independent broker/dealers.

Clients in financial institutions have lots of assets, and banks and others want to provide them with comprehensive planning, says Tooley, in explaining the need for a new dedicated channel. Life insurance is increasingly recognized as a “foundation of a good financial plan.” Previously, Lincoln had two separate wholesaling groups, each with more than 30 people, and two sales desks, each with more than 30 people, and all managed by different people.

The new channel will enable the firm “to sharpen our focus on helping advisors grow their businesses,” notes Tooley.

In April, Behrens was named president of American National Life Insurance Company of New York (Glenmont, NY), an ANICO subsidiary, succeeding Jim Pozzi, who became president and COO of the parent company. Behrens, who has been with American National Insurance for 14 years, continues as executive vice president of the Independent Marketing Group.

ANICO is working more these days with banks on the trust department side as they develop 401(k) plans for small businesses; American National has been providing group variable annuities to banks in this segment.

Behrens sees less conflict these days among bank departments—e.g., between trust and brokerage—perhaps a result of the tougher economic times. Many of the product silos are coming down. Trust officers are now less likely to say, “I’m not referring to those guys,” meaning retail brokers whom they often treated more like used car salesmen than financial advisors. “We’re seeing a lot more cooperation within bank departments,” says Behrens.

ANICO’s Signature term insurance line offers accelerated benefit riders for critical, chronic, and terminal illnesses. Such riders are likely to become more prevalent, in Behrens’ view. People are just looking at life insurance differently these days. What happens if something happens to me health-wise—like a stroke or cancer? Will I have liquid assets? Such riders allow for better family planning decisions—which is why they should gain more traction, Behrens suggests.

The new product line also allows express underwriting. Behrens figures that 93 percent of policies can be delivered in five days or less and 80 percent in three days or less, which mitigates buyers’ remorse—and places less of a sales burden on an agency.

“There is a lot of opportunity for companies that kept their powder dry in [terms of] expanding their product lines,” notes Behrens, mainly because many suppliers are now pulling out of certain markets—like Hartford and John Hancock in variable annuities. “We’re seeing it with term life,” Behrens told us. People who weren’t able to work with ANICO in the past have recently become clients. “They’re looking for capacity.”

“We’re very cautious, trying to manage for the long haul,” notes Behrens. It helps that 60-plus percent of the stock of publicly held ANICO is owned by a trust, “so we can manage more for the long term,” without worrying unduly about the pressure of maintaining quarter-to-quarter numbers.

Andrew Singer is editor-in-chief and publisher of Bank Insurance & Securities Marketing magazine. He can be reached at asinger@bisanet.org