It seems some insurance carriers are fighting this low-interest rate environment by bumping up rates on the policies advisors love – and that love them back!
Three large U.S. insurance carriers – Voya Financial, AXA and Transamerica – have all recently upped the costs for in-force universal life insurance contracts and that’s got insurance advisors south of the border wondering if more companies will join the parade.
“You're going to see more and more of this happen unfortunately if we continue to stay in a low interest rate environment,” Gregory Olsen, partner at Lenox Advisors Inc., said in Investment News. “I think that this is the time where the rubber meets the road with advisers that have sold these contracts. This is just the tip of the iceberg.”
That’s great to know but advisors here are left to wonder what is going to happen in the Great White North.
“For any UL policy in which the cost of insurance is not guaranteed the insurance company has the right to raise the premiums – and they will if the need is there to cover cost of mortality, interest rates and expenses – and generate the required level of profitability,” veteran insurance sales training consultant Helena Smeenk-Pritchard told LHP. “Universal Life is a Non Par product – and non par profits = shareholder return on investment.”
Translation: You better believe it.
Smeenk-Pritchard didn’t come right out and definitively answer this question but the writing appears to be on the wall.
One need only consider the interest rate situation in the two countries to understand why what’s happening south of the border will make its way to Canada. LHPs sister publication, Wealth Professional, recently covered the effect of interest rates on the economies of both Canada and the U.S.
In a nutshell while it looks like the U.S. Federal Reserve will raise rates this month, the Bank of Canada is likely to hold tight in 2016 given the fragile state of our economy.
“These products were not priced for interest rates this low for this long a period of time. Raising rates 25 basis points and having a wait and see [approach] is going to have minimal impact,” Mr. Olsen said.
And definitely bad news for Canadian advisors who’ve sold a lot of universal life.
“You're going to see more and more of this happen unfortunately if we continue to stay in a low interest rate environment,” Gregory Olsen, partner at Lenox Advisors Inc., said in Investment News. “I think that this is the time where the rubber meets the road with advisers that have sold these contracts. This is just the tip of the iceberg.”
That’s great to know but advisors here are left to wonder what is going to happen in the Great White North.
“For any UL policy in which the cost of insurance is not guaranteed the insurance company has the right to raise the premiums – and they will if the need is there to cover cost of mortality, interest rates and expenses – and generate the required level of profitability,” veteran insurance sales training consultant Helena Smeenk-Pritchard told LHP. “Universal Life is a Non Par product – and non par profits = shareholder return on investment.”
Translation: You better believe it.
Smeenk-Pritchard didn’t come right out and definitively answer this question but the writing appears to be on the wall.
One need only consider the interest rate situation in the two countries to understand why what’s happening south of the border will make its way to Canada. LHPs sister publication, Wealth Professional, recently covered the effect of interest rates on the economies of both Canada and the U.S.
In a nutshell while it looks like the U.S. Federal Reserve will raise rates this month, the Bank of Canada is likely to hold tight in 2016 given the fragile state of our economy.
“These products were not priced for interest rates this low for this long a period of time. Raising rates 25 basis points and having a wait and see [approach] is going to have minimal impact,” Mr. Olsen said.
And definitely bad news for Canadian advisors who’ve sold a lot of universal life.
