Research: Life Insurers Should Look to Non-Traditional Sources of Growth

Amidst growing financial pressure, insurance companies are looking to non-traditional sources of growth, said Cerulli Associates. According to the global analytics firm’s report, “Annuities and Insurance 2013: Balancing Shrinking Supply and Increasing Demand for Guarantees,” many insurers scramble to diversify their business mix, and opportunities in the pension plan (i.e., defined benefit plans) marketplace are being revealed. “We’ve seen increasing product development and reinvention among insurers in other business lines,” Donnie Ethier, senior analyst at Cerulli said.

While progress in the traditional variable annuity (VA) market has been marginal, there has been inspiring product development and reinvention among insurers in other business lines, including deferred income annuities (DIAs) and structured VAs, according to the report. Controversially, indexed universal life (IUL) and fixed-indexed annuity (FIA) activity has intensified. Cerulli said it very much supports the development of other potential solutions in the making, including contingent deferred annuities (CDAs), fee-based VAs and simplified VAs, although acceptance and overall sales are unsubstantiated.

The report also points to opportunities for insurers to acquire domestic plan assets by means of a buy-in or a buyout, which is a maturing trend in the U.K. “If the U.K. market is an indicator of things to come, insurers may have the potential to capture immense domestic pension assets, whether hedging a portion of the liabilities via a buy-in, fully acquiring the assets through a buyout, or continuing to capture retail and rollover assets,” Ethier explains. “Despite de-risking measures, pensions still control $6.7 trillion, although public defined benefit plans still claim nearly two-thirds (63 percent) of the total assets.”

Executives should form accurate views of the opportunities, because undertaking these endeavors will require a plan sponsor to conduct vast due diligence, Cerulli said. The firm recommends insurers keep a close eye on competitors, specifically the top-10 carriers (see the top 5, according to LIMRA here << http://www.insurancenetworking.com/news/jackson-national-leads-annuity-sales-2013-limra-32878-1.html>>. The top-10 carriers will play pivotal roles; thus, the industry’s immediate fate most likely hinges on their strategic actions, Cerulli said.

In early August Novarica, released a report that echoes the increasing competition in the annuity market. And technology plays an ever-larger role (http://www.insurancenetworking.com/news/annuity-carriers-turning-to-bi-hyper-competitive-market-32805-1.html) in insurers’ ability to attract, retain and profitably serve clients.

In its report, Cerulli stresses that the overall success of this market is still undetermined and the product evolution is equally a byproduct of insurers reactively scrambling to reduce risk as it is proactive innovation. Insurers must adapt to the fee-based advisory evolution, and the underlying investment choices are as important in swaying these advisors as are the fees and technology overlays.

The firm also says asset managers should “approach actuaries as exceptionally influential gatekeepers who will most likely function as the first point of contact when an asset manager attempts to position various solutions to address insurance opportunities. This includes VA subaccounts, funds of funds and VITs.

Additionally, Cerulli recommends that asset management’s relationship managers approach insurance executives with the possibility of insurers outsourcing a portion of general account responsibilities. Insurers continue to seek managers that can prudently increase yield, while helping to offset risk. There appears to be renewed interest in alternative strategies and equities, in addition to the customary fixed-income approach.”