The lower level cost of insurance in Manulife Financial's universal life insurance (UL) product and its rate enhancement feature has helped the company to return to the kind of UL sales volumes that it enjoyed before the price increases of 2010. In fact, there has been a noticeable pickup in UL sales throughout the industry.
According to the latest results from industry research group LIMRA, universal life insurance sales measured by new premiums increased by 10% during the first six months of 2015 compared to the same period in 2014. This return to growth comes after several difficult years for the product (see pages 6 to 10 for exclusive sales results provided by LIMRA).
Due to persistently low long-term interest rates, insurers have been looking for ways to improve the profitability of their guaranteed products, including level cost of insurance (COI) universal life. The successive price increases which began in 2010 ended up dampening sales of the product.
In an interview with The Insurance and Investment Journal, Steve Krupicz, Manulife’s AVP of Regional Actuarial and Underwriting Consultants, reviewed the progress of the product that was first launched in May 2014 to halt the decline in sales in universal life. He considers the increase in sales that LIMRA has reported for the first two quarters of 2015 as a return to normal, and he recalls that there was still some growth in universal life sales in 2010. As the result of price increases, he notes that UL sales went stagnant in 2011 and then declined from 2012 to 2014.
Krupicz points out that Manulife was the first to raise the price of its level COI universal life product in December 2010. “Virtually every other company in Canada followed sometime in 2011, and the industry increased its rates again in 2012, and again in 2013,” he says. “The trend reversed last year. Manulife decreased its cost of insurance first, but wasn’t the only one. Several companies followed last year. Consequently, there was an increase in UL sales at the end of 2014.”
The insurer overhauled the Manulife UL product in May 2015 (it was first launched in May 2014), and this also helped boost sales. The level cost of insurance on this latest version was lowered. In 2014, Manulife also has added a feature to improve the performance of its investment accounts that are linked to mutual funds. “The rate enhancement and lowering of the level cost of insurance on Manulife UL helped to bring clients back to the universal life product,” says Krupicz.
Thanks to the rate enhancement feature, the investment options linked to equity funds are credited daily with an additional return that is equivalent to an extra 1% over a period of 12 months. The additional return credited daily on fixed income funds corresponds to an extra yield of 0.25% over a period of 12 months.
The purpose of this performance optimizer is to encourage more clients to invest in mutual funds, reveals Krupicz. “Some people are more conservative, putting their money in GICs. They don’t want to invest in the markets,” he says.
In addition, Krupicz reveals that 25% of clients choose the version Manulife UL with the Gold investment account. The performance of this account is linked to that of the Performax Gold non-participating whole life product, less a 1% fee. The whole life account is currently paying a rate of 4.08%. Manulife changes the rate as necessary every year on March 31.
On the other hand, the insurer offers a guarantee of no less than 0% return on fixed-income investment accounts. In some of its older products, Manulife guaranteed that the return of the account linked to 10-year bonds would never be less than 1.5%, or that it would correspond to at least 90% of the return paid by a Government of Canada bond with same duration, minus 1.75%. “The industry started changing products five years ago,” notes Krupicz. “Now, the richest 10 years rate guarantee on the market is 1.5 %. Five years ago, it was 3%.”
Manulife wanted to create a universal life product that was more straightforward than the one available in its Innovision lineup, which is generally meant for wealthier clients. The insurer says it is going after a wider demographic, and Krupicz says the management fees on its investment options are the lowest in the industry; they range between 1.1% (for Canadian bond indices) and 1.55% (for European equity indices). Two managed accounts are also available free of charge, and the product does not have life fees or policy fees.