Insurance Agent Forum

[Markingriffin]

I keep hearing from companies like Aviva that "Current economic conditions have increased the cost of capital required to support the reserves on the industry’s term products. Carriers have addressed the issue by repricing or discontinuing term products, or reducing commissions."
"Rate increases will average 10% to 15% across all classes and bands"

This is from Aviva, but I think some other companies will do the same thing and blame the increase on the capital required to support the reserves. They have to blame something for the increase in cost.

I have seen a ton of companies increasing their prices lately and blaming the cost of the reserves.

Click here to see the memo from Aviva
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http://www.cpsimis.com/newsletter_files/WS.pdf Here is a story from the Wall Street Journal talking about companies raising their prices on term.

[dgoldenz]

This has been happening for months....companies are discontinuing 30-year terms, discontinuing ROP term, changing conversion options so that you can't get a no-lapse UL, getting rid of no-lapse UL altogether, increasing premiums, changing underwriting guidelines to give a less favorable risk class, etc.

On a side note, Aviva's UL seems to be the cheapest of every carrier in almost every situation. I wonder if those rate increases are coming next.

[JMO Fan]

I hope this brief explanation helps:

Term life reserves recently became more expensive due to the cost of capital.

In the U.S., term avoids having costly cash surrender values by having the premium skyrocket after the initial level premium period (e.g., 10, 20, 30 yrs). But statutory (XXX) term reserve requirements force U.S. carriers to assume everybody will keep the insurance past the level period. So although the level term premium itself isn't very dependent upon investments, its reserves are.

Term carriers were borrowing the money to support the reserves, but that is harder these days.

[djs]

My guess, and this is only a guess.....
The reserves they had were in things like what used to be relatively safe mortgage securities, commercial real estate, etc.

Those reserves are not worth what they used to be.

To have reserves to write new business, they borrowed the money, or at least attempted to. This adds to the cost of business, because now, instead of earning a profit on your investments, you are now paying interest on the loans. This cost gets reflected in higher premiums.

The memo would be correct. It is the current economic slump. Remember, the way they got the term rates down was because of the overall performance of the underlying investments. This works both ways.

Okay, I went and looked briefly. Aviva has a lot of companies, so it's hard to get a specific number, but overall, they are running a 100% (give or take 2%) combined ratio. This is pretty ugly in pure insurance terms, but is usually managable if the investments are performing. Obviously, they are not. They have lost money on the investments as well.

Dan

[LGilmore]

Like everything else, Insurance companies need to survive. Raising price is just another method and shouldn't be a surprize to anyone. Heck my bank has gone back to all sorts of nickel and diming BS to gather every dollar they can. I don't like it, but I understand the why behind it.