Tighter regulation of sales, more mergers and continued capital building are three developments insurance carriers are likely to experience in 2010.
“A harmonization of the [fiduciary] standard of care is going to occur, and not only among broker-dealers and advisers; it will morph over to insurance agencies and agents,” said Joan E. Boros, an attorney with Jorden Burt LLP who specializes in insurance and investment products.
State insurance regulators are also considering imposing higher standards on agents and carriers. A proposal before the National Association of Insurance Commissioners would revamp oversight of annuities, upgrade agent training and require carriers to review products and sales for suitability.
“The suitability initiative of the states melding with a federal standard is the catalyst for standard of care harmonization,” Ms. Boros said.
Following the recovery of equities in 2009 and the thawing of credit markets, the insurance industry may be primed for mergers in the new year, said Terence B. Martin, vice president of insurance research at Conning Research and Consulting. That's a switch from last year, when companies eager to raise capital put business units on the block, only to see them languish when suitors could not arrange financing.
Units up for sale now include ING's U.S. retirement business, while insurers in a buying mood include Sun Life Financial Inc.
“We'll see some consolidations,” Mr. Martin said, noting that many carriers who “came through the storm have the means to buy. There's pent-up demand, and we may start to see it kick in.”
While not necessarily forecasting mergers, Ms. Boros foresees a convergence of insurance companies and banks.
“Some banks will recognize that insurance companies are the leaders in understanding risk management and that bankers are the leaders in understanding money management,” she said. A merging of the two disciplines to create products and foster sales channels may be in the cards, Ms. Boros said.
The volume of mergers and acquisitions in 2010 will hinge on carriers' ability to replenish their capital bases, said Doug French, principal and leader of the insurance and actuarial advisory services practice in Ernst & Young LLP's financial services office.
“Mega-deals” will depend on the direction of the equity markets during the first half of the year and the carriers' view of their capital strength, he added.
A new regulatory regime, including the possibility of a federal regulator, may demand greater capital reserves, Mr. French noted.
Through the third quarter of last year, life insurers increased their capital base by some $14 billion, and Conning Research believes that total capital at year-end was up by about $19 billion.
“Whether companies will repay the money or hand back the capital they got from other sources, including infusions from their corporate parents, will be big issues in 2010,” Mr. Martin said. “Capital is still constrained, and [capital adequacy] will be high on the agenda through 2010 and maybe through 2012, depending on the company.”
On a product note, look for insurers to enhance annuities with long-term-care and stable-value features, among other sweeteners, Ms. Boros said.
“By virtue of the complexity of retirement planning, in part accelerated by the crisis, there also will be a dramatic technological difference in the calculators and tools available for retirement planning,” she said.
E-mail Darla Mercado at [email protected].
