Thoughts on Genworth Financial exit from the settlement annuity market.
The Settlement Channel
19 Comments
Well, it's been a month or so since the rather surprising announcement by Genworth Financial that they were going to close down their structured annuity division at the end of August, and thus removing a couple of the great names of the settlement industry, First Colony Life and Mayflower Life, from the roster of markets.
In the emails and phone calls i've had with various industry people, brokers, company reps, etc, there we a couple of major themes that ran through their observations.
1. The announcement totally came out of the blue. Typically you can see some of this coming, either as a result of an investment downgrade, merger, business reversal or a prolonged period of poor pricing. None of those were the case with Genworth as their pricing had been reasonably competitive, their financial's were strong and they had come out of their spin off from GE Capital with generally very good reviews.
2. People are were expecting some contraction of the market, but Genworth was not a name anyone tossed out as a likely candidate to stop writing structures. With Genworth making a very strong push on the variable and fixed annuity business it would have seemed to be a natural to keep the structured annuity side running, but clearly the management at Genworth didn't like their margins, or more likely the prospects for growth, and decided it was better off placing it's resources elsewhere.
3. Genworth's withdrawal high lighted the issue that is facing our industry, and that is that we are not on a plateau, but we are in fact contracting. With each quarter it become more and more apparent that other financial vehicles such as trusts, variable annuities, mutual funds, banks, etc, are capturing most of the cash in settlements. If the only growth a life market can get is from cannibalizing premium from other markets, that's not a healthy allocation of resources and will eventually lead to a life company taking a hard look at their reasons for staying in a market.
As I have told others, I wasn't surprised a market decided to leave, but I was surprised it was Genworth. I still expect before year end we will have at least one more announcement regarding a market leaving. The Companies still writing settlement annuties are:
Allstate Life, American General, Aviva, Fidelity & Guarantee, Hartford Life, John Hancock, Liberty Life, Mass Mutual Life, Met Life, NY Life, Pacific Life, Prudential, Symetra and Travelers. Which one will decide to pull out next is pretty much anyone's guess.
View Printer Friendly Version
Email Article to Friend
Reader Comments (19)
1. A.M. Best downgrade below an A+ (Western National, United of Omaha, etc.)
2. Lack of sales/lack of profit (not necessarily the same thing). (Genworth, ING, Aegon)
3. Loss of leadership and/or committment to the business/loss of strategic fit in the company's portfolio of products (Farmers New World Life, Alexander Hamilton, Manulife, etc.)
4. Insolvency (Executive, Confed, Monarch)
I'm sure there are other factors, but those are the ones I see being the most relevant.
Though any of these things doesn't necessarily mean an exit. I'm still impressed Prudential hung in for all those years after their downgrade and then came back with a vengence when they got an upgrade from A.M. Best. Same with Aviva. In those cases, committment and leadership kept them in until the rating came back.
Maybe someone smarter than I (Mr. Darer?) could figure out if there's a formula to all of this...
Great point on Prudential and Aviva. They are both great examples of large companies that hung in and made a fresh commitment to the market and are both probably in the top 6 or 7 for premium written.
You also gave me an idea, how about we compile a list for historic purposes of the company that were in structures over the years, and no longer write them, or in many cases no longer exist as stand alone firms. The ones that come to mind that you didn't name are Charter Life, Baldwin United, National Fidelity, Presidential Life, Capital Life, Transamerica, Monumental, Peoples, Canada Life, Great West Life. Any others?
There's a big difference between Executive, Charter and groups that include Transamerica, Canada Life, Great West Life, Monumental. These are all still viable highly rated entities. Canada Life still writes structures in Canada. Monumental is rated A+ AM Best, Aa3 Moodys. United of Omaha existed before structured settlements and still exists after.
The issues over Executive's CA operation were different than the NY operation. Presidential Life is still alive and kicking although I recall that the press in 1991 was ready to call out the bagpipes to play " Amazing Grace". According to the company website they sell all sorts of annuities.
Jack has a nice mini-analysis. But its more than that. At times contraction is good for business. Eventually those company gaps will be filled if demand is sufficient.Consider that not so many years ago ING left the market and their mgmt team went to start the Mass Mutual Program. No offense to ING but Mass Mutual has been a great addtion to our industry that might not have happened if ING didnt pull out. Who remembers how cumbersome it was to work with AILife before the AIG merger with AmGen? Pacific Life came in.We now have 5 A++ markets. These companies and the others need our continued support as a distribution channel.And if there is a gap not being served by the contracted market then as an industry let's develop an industry strategy to bring more in.
Existing markets need to segment the market more and develop niche specialties to assure market growth and longevity. The party that Liberty started with Barco now has 2 more at the table with more to come. Members of our industry need to develop practioner specialties.to solidify our value as a distribution network
Great points in the later stages of the post, those being that "creative destruction" often leads to the entrance of other stronger players who can fill a specific niche. I would contend that we currently have the strongest roster of underwriters since the inception of the market and it is largely to the beneift of the settlement industry that it is so.
As to your first point I think we were compiling a list of those who wrote and withdrew more as a memory exercise then to make any assumptions as to why they withdrew. Obviously, ING leaving is not analogus to Executive Life being seized and liquidated by regulators.
That would assume we are proactive as an industry and not just a bunch of guys running out the clock to retirement or our various exit strategies. The lack of innovation and leadership from brokers has been the reason for most of our stagnation the last decade, and I generally blame the artifically high barriers for young professionals to join our business as the reason. If you look at some of the more innovative minds they are some of the younger brokers.
M & A rumors for 2007? Morgan Stanley puts three of our industry leaders (Prudential, Allstate and Hartford) on the acquisition list. M&A has been kind (the acquisition of Western Nat'l by AmGen, for example) cruel (Safeco's acquistion of American States led to their downgrade by Best) and neutral (Manulife's acquisition of Hancock) to our industry.
Any speculation on what might happen to these three if acquired?
Insurance, consumer sectors may see more M&A
By Alistair Barr, MarketWatch
Last Update: 7:09 PM ET Nov 20, 2006
Insurance could be particularly active in 2007," Robert Filek, a partner in the transaction services division of accountancy firm PricewaterhouseCoopers, said. "Insurers have had a good year and they will want put some of their profits to work in acquisitions."
In a Monday research report, Morgan Stanley Chief U.S. Investment Strategist Henry McVey identified several companies that are valued so cheaply that they could be acquisition targets.
Four insurers - Allstate Corporation, Hartford Financial, Prudential Financial and Torchmark Corporation.
"Whether these stocks become acquisition candidates or not, we do not know," McVey wrote. "However, they appear extremely cheap on our valuation framework, and as such, are worthy of investor attention."
Very thought provoking. I saw the headline and sort of glossed over it but you raise some interesting questions. There is little doubt that we are going to see mergers and acquisitions in the life and casualty business. Insurance is a business where size matters and the ability of a firm to obtain a brand name, much as Manulife did with John Hancock and then infuse it with capital and operational efficiency is too good a bargin to pass up. Lets face it, for brand name awareness Hartford, Prudential and Allstate all have enormous value, not to mention the potential of their respective business units. I remain concerned about the number of markets we will have in the short term as I still believe we will see at least one more life market exit the structured annuity business in the next 6 months, not because of loss of profits, but rather because of poor growth prospects. ( think Genworth )
I think we are still going to see a shake out, and the potential of mergers will only hasten the consolidation of markets down to potentially 8 or 9 by the end of 2007. With the demise of approved lists of brokers, approved markets and captive casualty/life arrangements the settlement divisions of each life company will need to compete primarily on price and credit quality, with the 7th, 8th and 9th place companies largely left out of the loop. Net effect, mergers or not, we are going to see continued consolidation unless certain life markets begin to create distinct niche's such as legal fees, structured sales, non-qualified, etc., and choose to compete in that fashion.
I now understand how Rome fell . . . and with the nonsense going on it won't be long before much of the American insurance front falls too (continued consolidation).
Instead of actually improving their security, they seek to transfer liability to vendors. Instead of actually hiring people who know business and technology they hire part-time talent. It is amazing to watch what passes for business . . . sort of makes me wonder why we haven't witnessed even more consolidation . . . they must be making so much money that it compensates for even gross incompetence.
RICHMOND, Va., Dec. 15 /PRNewswire-FirstCall/ -- Genworth Financial, Inc. announced today it will merge three of its life insurance companies into existing Genworth-named insurance companies. These mergers complete Genworth's multi-year effort to brand its legal entities with the Genworth name and simplify its corporate structures.
Pending final regulatory approval, companies being merged as of January 1, 2007 are as follows:
* First Colony Life Insurance Company will merge into Genworth Life and
Annuity Insurance Company.
* Federal Home Life Insurance Company will merge into Genworth Life and
Annuity Insurance Company.
* American Mayflower Life Insurance Company of New York will merge into
Genworth Life Insurance Company of New York.
OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit rating of "bbb+" of Concord Heritage Life Insurance Company, Inc. (Concord Heritage Life) (New Hampshire). The ratings have been removed from under review and assigned a stable outlook. These rating actions follow the decision by Liberty Bankers Life Insurance Company (Liberty Bankers Life) (Oklahoma) to withdraw its Form A filing related to its proposed acquisition of Concord Heritage Life.
Concord Heritage Life is a member of the Allstate Financial segment of The Allstate Corporation (Allstate) (NYSE:ALL - News; Northbrook, IL). Although Concord Heritage Life is a member of Allstate, its ratings are based upon its stand-alone characteristics and are reflective of its status as a non-core subsidiary. The ratings of the other member companies of Allstate Financial remain unchanged.
It's not a very pleasant article, particularly from their new president. Flat yield and no new products. I wonder how they plan to improve things?
http://chicagobusiness.com/cgi-bin/news.pl?id=23693&bt=Allstate+Corp.&arc=n&searchType=phrase
However, I've got to say their lack of investment in Structured sales has been discouraging to say the least. There is a market aching for some leadership, PLR, Revenue ruling, marketing to real estate and tax professionals, but it is languishing due to lack of PR.
The bottom line is that our entire industry is " in Play" and that any company could be purchased or sold.
http://communities.canada.com/nationalpost/blogs/tradingdesk/archive/2007/06/06/manulife-prepared-for-large-u-s-acquisition-analysts.aspx
Another buyer for the lackluster (according to the company president) Allstate Life?