REINSURANCE

Converium opts out of the US

National Indemnity, a subsidiary of US financial services group Berkshire Hathaway, has bought the North American business unit of Swiss Life and non-life reinsurer Converium for $295 million. The purchase price comprised $95 million in cash and $200 million in assumption of debt.

Commenting, Converium CEO INGa Beale said: “We can now fully concentrate on building Converium’s future, with our business strategy focused on markets outside the US.”

Converium, which was spun off by Zurich Financial Services in 2001 as a separate company, has experienced considerable problems with its North American business. In 2004 the reinsurer announced that losses related primarily to underwriting between 1997 and 2001 would require a $420 million capital injection to strengthen its reserves.

Rating agencies Standard & Poor’s and AM Best, which downgraded Converium harshly in 2004, have greeted positively the ownership change positively, placing the reinsurer on credit watches with positive outlook implications.

On 6 April 2006 – dubbed ‘ A-Day’ – the UK’s pension regulations underwent a radical change when eight sets of rules were replaced with one system that made all pensions subject to the same tax treatment regardless of the type of pension scheme or when the scheme began. Half a year on and HSBC Life, a unit of HSBC Bank, reports that the public has woken up to the benefits of life cover with tax relief and in the process there has been a “dramatic take-up” of pension term assurance (PTA).

Solvency II, a project initiated by the European Union (EU) to create a more risk-related solvency model for insurers, is one of the most sweeping legislative changes ever to confront the industry. In an effort to convince policymakers to act in a manner that creates the least disruption, the Comité Européen des Assurances (CEA) has published a paper stressing the key position insurers hold in Europe’s economy and the role they can to play in its future development.

Research undertaken by UK insurer Winterthur Life has revealed that there is a strong appetite for pensions products among high net worth individuals (HNWIs), with 96 percent of them holding a pension plan. However, HNWIs are becoming far more savvy when it comes to making decisions, a development independent financial adviser (IFA) need to be more aware of.

The Association of British Insurers (ABI) has published the first economic analysis of the UK government’s proposed National Pension Saving Scheme (NPSS) that it believes strongly supports a model based on free competition among product suppliers. This is in sharp contrast to a proposal made by the Turner Pensions Commission earlier this year that the number of personal account pension savings products should be limited to a maximum of ten and be supplied by one producer.

Callum McCarthy, chairman of the UK’s Financial Services Authority (FSA), has taken British insurance companies to task, posing the question “Is the present business model bust?”.

PREMIUM INCOME

Rates continue to slide steadily downwards

Premiums for individual life insurance in the US will fall by 4 percent in 2007, predicts the Insurance Information Institute (III). This decline is expected to be seen in universal life products, which pay a death benefit no matter when the insured person dies, and term life products. A 4 percent decline would be in line with the average 5 percent per year drop since 2000 and continue a trend that began several decades ago, said III economist Steven Weisbart.

He explained that life insurance rates are dropping because death rates for the 25 to 44 age group – the primary age range for purchasing life insurance – have decreased significantly over the past ten years.

Weisbart noted that in 1996 the death rate per 100,000 for the 25 to 44 age group was 177.8; by 2004 it had dropped to 161.8, based on preliminary data from the National Vital Statistics Reports.

“That is nearly a 10 percent drop in the death rate in less than a decade for the prime insurance-buying ages,” he stressed.

The result is that, in 2006, premiums are less than half of what they were just over a decade ago.

Providing an example of expected premiums for term policies in 2007, the III said it estimates that the annual premium for a 40-year-old male non-smoker buying a $500,000 20-year level term life insurance policy will be $615 if he qualifies as a “standard risk” and $340 if he meets the more stringent requirements of a “preferred risk”.

Rates for women, younger people and for larger amounts of insurance would be lower.

Communications programmes targeting employees can generate big increases in pension scheme enrolment, advises Helen Gilchrist, a communication consultant with UK life insurer Winterthur. In some recent incidences, this has been from below 40 percent of employees to almost 90 percent.

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