As part of its recent move to focus on its life insurance business, Transamerica Life Canada has withdrawn its guaranteed withdrawal product Five for Life. It has also eliminated its investment product wholesaling team and two high executives have left the company.A total of 20 jobs across Canada were cut plus the two executive positions. Not all of these jobs were on the wholesale sales and marketing side. Some were operational and support roles. The positions that were cut represent about three per cent of the company’s Canadian workforce.
Doug Paul, executive vice president sales, and chief marketing officer, and Robert (Bob) Aggio, vice-president sales and independent distribution, left the company on Jan. 18, the same day that changes were announced to the company’s seg fund lineup, said Ray McKenzie, Transamerica’s senior vice president, retail sales, during an interview with The Insurance and Investment Journal.
With respect to these executives’ departures, Mr. McKenzie said the company is looking to more tightly integrate product development, sales and marketing. “We needed to do a few moves in order for this integration to take place.”
Mr. Paul had been with Transamerica for about 10 years, said Mr. McKenzie. Meanwhile, according to his LinkedIn profile, Mr. Aggio had been with Transamerica almost six and a half years.
As well as closing Five for Life, the company has also capped additional deposits at $25,000 for existing policyholders on its imaxxGIF, TIP, and GrowSafe products. These products were already closed to new sales.
Mr. McKenzie says the company will continue to service its in-force investment business and the investment products for which it is still accepting new business. These are: Transamerica GIF seg funds, mutual funds, single premium immediate annuities (SPIAs) and Guaranteed Interest Accounts (GIAs). “Our call centre at our head office will support that. We just will slowly discontinue the wholesaling support…”
A transition team will be available to help with what is expected to be a short-term, higher volume of questions from advisors. This team is available until the end of April.
In terms of the investment products which remain on Transamerica’s shelf, Mr. McKenzie said the company will no longer be “proactively selling or marketing them.”
Does this mean the company has effectively exited the seg fund market? “That’s not entirely true,” says Mr. McKenzie. “We still have a seg fund product; we still have our product line; we still take new accounts; we still take new money…” However, he adds, the company is obviously concentrating its energies on the life insurance side of the business now.
“We feel these changes will help us focus on the insurance side so that we can focus on expanding our product line, expanding our service offering, as well as our tools and relationships on the insurance and production side in Canada.”
Is Transamerica planning to sell off its block of seg fund business now that it is no longer a focus? Mr. McKenzie responds, “There are no such plans.”
Pierre Vincent, senior vice president, product strategy and business profitability with Transamerica Canada, says various market conditions led to the decision. “When we did our strategic review there were three main factors: the economy, particularly the low interest rates impacted our decision; the competitive environment and most importantly the limited scale that Transamerica Life Canada had on the segregated fund side.”
The company’s segregated fund business totaled $2.4 billion in assets as of Sept. 30, 2011. Five for Life assets were $375 million, or 15% of seg fund assets.
On the life side, meanwhile, business is good, Mr. Vincent adds, so the company has decided to focus on what it does best. “The life business is thriving. We are a top five player and we have more than a half million policyholders.”
In particular, Mr. Vincent says Transamerica’s strengths are in term and universal life insurance products for the middle market. “But of course we want to continue expanding our product line so we will look at providing other products to our advisors and to consumers.”
Asked about Transamerica’s recent decisions to withdraw Five for Life and eliminate its investment wholesale team, Tony Ryan, executive vice-president of managing general agency Financial Horizons Group, responded, “It is disappointing to see carriers disappear or stop participating in a marketplace; competition is needed.”
Is he concerned that other insurers might also withdraw their GWB products? He does not think so, but believes that insurers will make significant changes to these products.
With respect to Transamerica’s strategy to focus on the life business, Mr. Ryan commented, “It will be good to see them regain their strength in the life market. We hope they will be a long term player.”
Terri DiFlorio, president of Hub Financial, says she is not surprised by the withdrawal of Five for Life. GWB products are a challenge for all carriers, she adds. Insurers have been making changes to their GWB products and she believes this will continue. “If the product was not profitable for Transamerica, then I think their decision is a responsible one. I was, however, surprised by their decision to basically exit the segregated fund market by withdrawing all support.”
She says she has not heard much concern from advisors about the withdrawal of Five for Life. “Transamerica segregated funds made up a very small portion of our new deposits. Their product was not highly competitive and our advisors typically supported other products.”
However, she adds that some advisors expressed concern that this might be the first of other GWB product withdrawals in the market. Does she think other insurers may follow suit? “It certainly would not surprise me,” says Ms. DiFlorio.
With regard to Transamerica’s decision to focus on their life business, Ms. DiFlorio believes companies must focus where they excel. “If their strengths and resources allow them to be great at risk products, then that is where they should be. The market is ultra competitive. You can’t be mediocre at something and succeed.”
The last several months have seen many insurers withdraw or adjust products and raise pricing. Ms. DiFlorio says the impact of these continual changes on the distribution channel is two-pronged. “In the short-term, they create fire sales and reasons for advisors to get out there and talk to their clients. In the longer term, it concerns me about the viability of segregated funds in general. I think the product is excellent and certainly has a place in the market. We just all have to figure out how to make it a win-win.”
Bruce Hammond, chairman and CEO at Performins Canada, also expects the GWB market to continue to see changes. “There is no question that this product is kind of morphing a bit and it’s going to be a little different in the future. I am hopeful that the insurance companies are going to stick with it because I think it is a great product for the clients...”
He says about 50% of Performins’ business is in the seg fund market and about half of that is GWB products.
He added that he isn’t concerned about the loss of Transamerica’s GWB product in particular though, since it did not have much success in the market.
He adds that the problems that Transamerica has experienced in the past few years with its maturing block of seg fund business probably had an impact on its ability to attract new seg fund business.
In 2010, Transamerica Life Canada saw seg fund redemptions of about one billion dollars as a result of maturing policies, which was approximately one-third of its total seg fund block. In addition, the company had to pay top ups over the market value of these policies totalling another billion (See The Insurance and Investment Journal, March 2011, page 11).
Mr. Hammond says he thinks the maturing block problem made a lot of advisors fearful and caused them to turn away from the company's seg funds. “In fairness, Transamerica made good on everything. There were no issues at the end of the day, but there was an awful lot of concern, which created a lot of uncertainty about the company’s viability and, as a result, I think a lot of business went elsewhere.”
Paul Isaacson, president of Daystar Financial says the fact that Transamerica is cutting off support to its block of investment business raises the possibility of an eventual sale. “Without any support out there in the world, that book of (investment) business is probably going to bleed off and so they’ll probably look at selling that at some point in time.”
No structure or support
Mr. Isaacson adds that with no structure or support for Transamerica’s seg fund business, advisors will likely get nervous about the situation. “A lot of people will kind of look at it and say ‘Maybe I shouldn’t have that kind of business with these guys.’”
However, he adds that advisors will look at the best interests of their clients before moving any business. If a client is invested in an older product – where some of the features and benefits are significantly better than some of the newer products – then they wouldn’t want to make any changes, Mr. Isaacson explains. “Not everybody’s going to react the same way to this...”
Daystar does not currently have a contract with Transamerica, although Mr. Isaacson says they are re-opening negotiations on that front.
He points out that while Transamerica has stepped away from the investment business, Standard Life has recently gone the other way by leaving the individual life business to focus on its strength in the investment market (See The Insurance and Investment Journal, January 2012, pages 34 & 35).
Mr. Isaacson says these kinds of decisions all boil down to risk management and profitability. “There’s not a lot of margin in the products these days…You need a lot of scale and a lot of volume to be able to make money at it...They’ve got an ROE they need to achieve from a shareholder perspective.”