Turning the Battleship Around…An Update

In my last blog, Turning the Battleship Around…Has it Started?, I wrote about Whole Life dividend trends and stated perhaps the dividend slide might be “leveling off and slowly trending upward.”  I based that thinking on the fact that of the “Big 4” Whole Life carriers—Northwestern Mutual, Mass Mutual, Guardian Life, and New York Life, three had “either maintained or increased their dividend rate,” which I believed was a “positive trend.”

Battleship

At that point, two of the “Big 4” had reported their 2015 dividend rates. Northwestern Mutual had announced their dividend rate would hold steady at the 2014 rate of 5.6%. Mass Mutual also announced that they would hold steady at their 2014 rate of 7.1%, a step up from their 7% 2013 rate.

This week, the other two carriers announced their dividend rates for 2015.

  • On Monday, the Guardian Life Insurance Company announced a drop in its dividend rate to 6.05%, from the 2014 6.25% rate. This marks the third year in a row that the Guardian dropped their dividend scale.
  • On a more promising note, NY Life, the largest mutual carrier in the US, announced on the same day that its dividend rate would increase to 6.2% in 2015. This marks the third year in a row that their dividend has jumped. The 2013 rate increased to 5.9% from the 2012 5.8% rate, then rose to 6% in 2014.

What does this mean? The landscape has not changed dramatically for carriers. We are still in a historically low fixed investment environment. As the chairman of NY Life pointed out when announcing their increased dividend scale, “The downward pressure on interest rates continues to be challenging for life insurers.” However, he also pointed out that NY Life “benefited” from their “large and growing investment management business, which not only provides the safety of diversification... but meaningfully contributes to both our surplus and our dividends.” According to Mr. Mathas, this “diversified business strategy is a key reason we’ve been able to increase our dividend for three years running.”

As can be seen, carriers are looking to broaden their business to gain profits. In addition, some carriers are also chasing higher returns by lowering the quality of their fixed investments. Not dramatically, incrementally, but that is pushing their returns up a bit.

Carriers will be increasingly challenged if interest rates do not turn around soon. If they are forced to continue to add low interest instruments to their portfolios for the unforeseeable future the chances for the industry to continue a leveling or upward trend in dividend rates will drop. However, carriers are taking steps to alleviate these issues and as I said in the last blog, I am hopeful that we will see “happier (higher dividend) days” ahead. But as I also said, “If you are managing Whole Life policies you still need to keep a close eye on them. Annual reviews to match expectations with reality are a must.”

Happy Thanksgiving to All.