A renewed confidence

Investment advisers' confidence in the financial health of the insurance industry — though still underwhelming — is on the rebound, according to the InvestmentNews 2010 Insurance Product Survey. Of the 484 advisers surveyed this year, 48% said that they were concerned about the financial health of the insurance industry, down significantly from 59.3% a year ago. This year, 41.6% of respondents indicated that an insurer's financial rating was the most important factor they considered when recommending life insurance, compared with the 49.6% who cited it in 2009. “From my perspective, when the sky was falling, the insurers that needed the help, got it,” said Michael Black, an adviser with Michael Phillips Black Wealth Management. “We're seeing profitability now, so as advisers in 2010, we're less concerned about the financial solvency of an insurer than we were last year.” Advisers grew leery of insurance companies after the 2008 financial meltdown, when American International Group Inc., Lincoln National Corp. and The Hartford Financial Services Group Inc. received financial aid from the U.S. government. (Lincoln and The Hartford have since repaid the assistance.) Today, advisers' increased confidence in the financial stability of the insurance industry is also reflected in their willingness to recommend insurance products to their clients. In this year's survey, 73.5% of advisers said they recommended insurance products either “most of the time” or “regularly,” compared with 64% last year. Variable annuities sales have been enjoying a rebound since the beginning of the year and the products continue to be a staple in advisers' practices. Sales of variable annuities during the first half totaled $67.9 billion, up 8% from the year-earlier period, according to data from LIMRA. Those products have been in flux since 2008, when many carriers dialed down benefits or released more conservative versions, as was the case for John Hancock Financial Services Inc. and ING Financial Solutions. This year, however, insurers are tiptoeing back into contracts that offer generous benefits. Nationwide Financial Services Inc., for example, raised payouts for its lifetime income rider by 25 basis points — to 5.25%, for those between 65 and 80 and to 6.25% for those over 81.

ADDING LIVING BENEFITS

Others have became more creative, such as Lincoln National, which has filed a new long-term-care benefit for its variable annuity. “The percentage of variable annuities we've sold with living benefits has gone way up,” said Jeffrey B. Snyder, an adviser with First Financial Associates LLC. His firm has been selling products from Jackson National Life Insurance Co. and Allianz Life Insurance Company of North America. The guarantees attached to the annuities remain the top focus for advisers, 45.7% of whom say that it's the most important feature they consider when advising clients on annuities. That's up slightly from 45.2% last year. Investment options and surrender charges follow, garnering 18.7% and 17.9% of the vote, respectively. Both are down slightly compared with last year, when 19.8% of the advisers said that investment options were the most important feature and 18.8% cited surrender charges as most important. Fixed annuities are still being recommended by some advisers, but total sales fell to $40.5 billion during the first half, down 39% from the year-earlier period, according to LIMRA. Advisers are mostly sticking to immediate and deferred fixed annuities: 48.9% said they recommended the former, while 50.4% were recommending the latter. Close to 28% were recommending indexed annuities, while 10.1% of respondents were considering longevity insurance. Advisers noted that clients were still having a hard time talking about long-term-care insurance and how they'll pay for it because of depleted investment portfolios. This year, 65.4% of the polled advisers said that it has become more difficult to get clients to think about paying for LTC insurance, up slightly from 62.8% last year. That hasn't stopped advisers from recommending LTC insurance. Of those surveyed, 58.8% said they were recommending it to a greater degree than in the past. That's up from 44.9% last year. Still, 41.2% of advisers said they weren't recommending LTC coverage to a greater degree than in the past. “Cost” was the top reason for not recommending it, cited by 43% of the advisers. “Prefer to self-insure” and “client doesn't need it” followed, cited by 26.3% and 25.4% of advisers, respectively. Clients' worries about paying for LTC insurance may have helped ease advisers into recommending hybrid products, combining it with life insurance or annuities. Half of the polled advisers said they are recommending these hybrids more often than in the past. Just last year, only 32.1% said that they were. “I haven't sold it yet, but I like Lincoln's MoneyGuard product,” Mr. Snyder said. MoneyGuard combines a universal life insurance policy with a long-term-care benefit. “I haven't put a big emphasis on it, since we do money management and investments, but we do discuss it.” Chris J. Olsen, an adviser with Olsen and Associates, said he prefers to stick to the stand-alone LTC products. “I always thought if you were doing term life, then do term; if you're doing LTC, then do LTC,” he said. Mr. Olsen has recommended policies from Genworth Financial Inc. and John Hancock that work with California's long-term-care insurance partnership program. E-mail Darla Mercado at dmercado@investmentnews.com.