In the past year we have witnessed a number of transactions in the life insurance industry. One of the largest was the sale last year of Hartford Financial Services Group, Inc.’s individual life insurance business to Prudential Life. That deal was a win/win/win. The transaction allowed Hartford to free up capital it felt could be better used in other areas. Prudential expanded its business line in a business it wants to be in. And the consumer won because the Hartford business and service has moved rather seamlessly over to Prudential. In fact, the Hartford name still exists in the marketplace, backed by Prudential, and is a very “competitive” product.
Last week we witnessed another transaction. This one is not being viewed as positively. According to a July 17th press release, “Allstate Corporation reached a definitive agreement to sell its Lincoln Benefit Life Company (LBL) to Resolution Life Holdings, Inc. ("Resolution Life") for $600 million.” The block of business will continue to be serviced by Allstate for 12-18 months, after which Resolution Life will take over.
Who is Resolution Life Holdings? It is the US operations for a UK company, whose mastermind is Clive Chowdry, a well know British entrepreneur. This is Mr. Chowdry’s first deal in the US, and according to an article in the Financial Times, this deal has, “ signaled his ambition to do stateside what he first managed in the UK, namely to buy up and roll together a number of life assurance businesses and to run them for cash instead of hunting for new customers.”
The “runoff administration” business model that is employed at Resolution Life is not new and in this case is designed to close off a block of business and turn it into an “investment” that can be bought and sold. While we will have to wait to see exactly what happens, this clearly does not seem to be a company (like Prudential) interested in developing a consumer oriented, high service model. Many in the industry see the opposite...a company interested in wringing maximum profits out of a "closed" block of life insurance policies.
What are the issues for you, the trustee, holding LBL policies?
- Service levels on Guaranteed UL Policies will more than likely drop making them much harder to manage. Lapses on Guaranteed UL products can be a profitable part of Resolution Life’s business plan. What is their incentive to providing good service levels to maintain these policies until eventual death benefits are paid?
- The financial stability of Resolution Life, especially if you are holding LBL Guaranteed UL products in your trust portfolio with minimal or even no cash value. Resolution Life is not currently rated.
- Mortality charge increases in LBL non-guaranteed products. I am working on a Blog citing a situation we have come across where another carrier has told us they will probably be raising their mortality charges dramatically before year’s end. In a recent insurancenewsnet.com article it was mentioned that insurers in general “will start to raise the mortality charges that are inherent in universal policies” because of marketplace pressures. In an entry about this transaction in lifeproductreview.com, Bobby Samuelson, notes, “LBL’s contracts have a provision that eliminates surrender charges if policy charges are increased.” Even so, keeping an eye on non-guaranteed policy charges on LBL policies going forward will be vital to your policy management program. I have to think some increases are coming down the road.
ITM will be accessing this situation for our clients going forward and will update you on this Blog as developments warrant.