The carrier community continues to struggle with the economic environment, and keeping up with all of the price changes, restrictions on lump sums and the like is almost a full time job. There are, however, some patterns emerging.

The first pattern is one we see every year - a first quarter dominated by price increases. What makes this year unique versus past years is the magnitude of some of the changes - take a look at the pricing at John Hancock as an example - as well as the fact that some of these very same carriers had a price increase as recently as six months ago. We all know the reason for this - reserving is more expensive as a result of the current economic environment.

A related pattern is the restriction on first year lump sum or 1035 exchange premiums. There are any number of ways the carrier accomplishes this - re-pricing the product completely with uncompetitive product performance, putting a multiple of target premium ceiling on first year premiums, or even dropping interest rates - and they are all based on one fundamental issue: it makes no sense to a carrier to take on a large amount of premium, and then credit more to the policy than they can hope to earn in an investment position with the proper risk profile. Until this changes, we will continue to see carriers adjust these and any other policy feature they can to manage this upside down position. This is also contributing to the flurry of price change activity.

A third trend we are seeing is indicated by the title of today's email. The days of carriers focusing their product pricing on "lifetime guarantees" may be coming to an end. There have been attempts at this before, but they focused on guarantees to life expectancy (LE) rather than to a point of hyper longevity. It appears now that there might be some economy from a reserving standpoint at age 105, and I think we can all agree that just about everyone is going to be on the "wrong side of the dirt" by that point.

I think that the issue with the LE approach is that while an institution may be OK with guarantees to that point on a group large enough to have a normal curve, individual families simply bear too much longevity risk as a result of only having one or two lives to consider in the equation. That potential premium payment at age 86 to extend coverage that would otherwise lapse can be enormous, but if funding to age 105, I think that risk is appropriately minimized. While I could set out to prove this statistically, I think I'll pass on putting you all to sleep and trust our collective intuition on this one!

One last note: there is one additional area we all need to keep an eye on, and that is compensation. Given that some carriers are using this as a way to shore up profitability of certain products or designs, it makes sense to me, all client-centered metrics being equal, to send the case to the carrier that still pays full compensation. We do enough pro-bono work already!