LIMRA Analyst: US Life Insurance Sales Won't Recover to Record 2007 Levels Until 2014-2015

Total 2011 sales of individual life insurance in the United States, measured by new annualized premium, rose 4% from 2010, resulting in the second straight year of growth, according to LIMRA. A senior analyst with the industry research organization says they expect sales to recover to the record 2007 levels around 2014 to 2015.

The growth is near what LIMRA had expected, Ashley Durham, LIMRA's senior analyst for product research, told Best's News Service. "Currently, we’re predicting that sales growth will remain lower, due to continued unfavorable economic forecasts, but positive over the next few years."

It was a bad year for the industry in 2009, in which total new annualized premium declined 15% (Best's News Service, March 3, 2010). But in 2010, total sales were boosted by whole life. Term life saw the biggest annual decline on record, with premium and policy count declining 12% for the year (Best's News Service, March 1, 2011).

For the second year in a row, sales of whole life propelled overall individual life insurance sales for 2011, according to Durham. Whole life premium increased 9% over 2010, representing the sixth straight year of growth. People "are attracted to the premium and cash-value guarantees along with lifetime coverage," Durham said in a statement.

Term life, however, was the only line to experience declines in both premium and policy count in 2011, with premium falling 6% while policy count fell 4%.

The largest factor contributing to the 6% decline in term sales was that term-UL products, which are designed to compete in the term life market, are reported to LIMRA as universal life sales, said Tom Rosendale, assistant vice president of Life/Health at A.M. Best Co.

Sales for UL "are somewhat overstated, while sales of term are understated," he said, noting that there also is likely "some overhang effect" from price increases in the two years leading up to 2011.

Term-UL is impacting term sales because some large term writers, such as Genworth Financial, Protective Life, and Transamerica Life dropped out of the market to write term-UL, Durham said. Transamerica is part of Aegon USA Group. Also affecting term sales is high unemployment which means that "even fewer people believe that they can afford insurance, even term," she said.

A.M. Best hasn't seen widespread evidence of term price increases in 2011 but there were "numerous price increases" in 2009 and 2010, Rosendale said. One factor was the cost of reserve financing for the "onerous" reserves for Regulation XXX.

While lifetime UL policies represent the lion’s share of UL annualized premium, at 40%, sales dropped 7% in 2011, due to price increases and companies leaving the market.

There are some indexed UL products that also have no-lapse guarantees that are likely being reported to LIMRA under the indexed UL category, Rosendale said.

LIMRA says it uses "lifetime guarantee" UL rather than "secondary guarantee" UL because it's more precise. It formerly used "long-term secondary death benefit guarantee” UL but is now using “lifetime guarantee” UL to reinforce that the product should be guaranteed to age 120 because the mortality tables go to age 120.

While a small number of carriers have left the market, such as Sun Life, "we believe the issue is more one of price increases which have made the products somewhat less attractive," Rosendale said. Similar to the term life issue, the capital-intensive nature of this product, along with the availability and cost of reserve financing for Actuarial Guideline 38 are "forcing some carriers to de-emphasize the product."

The newer, hybrid term-UL policies sold by insurers including Genworth and Protective were at the heart of the latest debate surrounding AG 38. The Regulation XXX reserve regime covers certain term life policies while the AG 38 reserve regime is used to determine the statutory reserves life insurers must hold to support UL policies with the secondary death benefit guarantee (Best's News Service, Dec. 12, 2011).

Overall, UL premium rose 3% in 2011, despite a 2% decline in the fourth quarter, while the number of UL policies sold increased for the third straight year, up 8%, LIMRA said.

Driving this growth was indexed UL, with premium jumping 38%, representing about 25% of UL premium sold. Indexed UL policy count rose 30% in 2011.

Stock-market linked variable UL experienced a bit of resurgence in 2011, representing the second-biggest driver of total individual life insurance premium growth for the year. VUL climbed 22% in 2011, helped by a 36% jump in the fourth quarter.

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)