Information is only as good as it is accurate and timely. A survey just released by Towers Watson is certainly timely, and I think the accuracy is spot on as well. Just what was the survey focused on? How major life insurance company CFO's feel about the near term economic environment and performance of the life insurance sector. Compelling reading for any of us in the field whose success is tied directly to the success of our carriers.

So what did they have to say? You can read the survey for yourself here, but the bottom line is that there is greater optimism than the prior survey conducted in the fall of 2011. More important, however, are some of the conclusions that we can draw from the survey answers around management of in force contracts as well as future product design.

In Force Contracts

The survey, completed in June of this year, points out that many companies are outside their stated risk tolerance for interest rate risk, as well as the rather obvious point that these carriers will need to do something about it if the current environment persists. The remedies are well known to most of us, and have been explored in previous writings in this forum. The bottom line is many of the available tools in the carrier tool box involve current assumption adjustments that will drive up required premiums on current assumption based products: interest rates, cap rates, dividend scales and even M&E charges. Annual reviews are going to be critical.

Product Development - Near Term

The dwindling number of carriers offering GUL contracts is cited in the article and this is clearly a trend that is going to continue. There is a growing body of opinion that not only is the sun setting on the market dominance of GUL contracts, but also that the pricing of the remaining products in that sector will be so high in the relatively near future that they could be reduced to nothing more than a niche player. The bell you are hearing could be the death knell of permanent product spreadsheets. Good riddance I say!

Product Development - Long Term

Much of the discussion around which product will rise to the top in this environment focuses on currently available products. When I look at the course of product development from the 1980's to now, it goes something like this:

• 1980's - Rise of Universal Life based on flexibility of premiums versus Whole Life and the high interest rate environment of that period.
• 1990's - The introduction of Variable Life shifts the investment risk on to the policy holder and again chases high returns.
• 2000's - Indexed UL begins to gain traction, this time in response to the desire for downside risk management after policy holders take a bit of a beating in the market. GUL also rises as the pendulum shifts from cash accumulation to predictability.

So what's next? Is it another variation on a theme, or is someone out there innovating? While I am not a product actuary, I am starting to wonder if we might be better served as an industry to start thinking about something beyond variations on currently available products? What attributes do you think the next generation of products should have (and don't say living benefits, they are another variation on a theme, and already available)? How should they be developed? In the lab at an insurance company home office? In the field? A combination? Have an opinion? Email me with it and perhaps we will re-visit this topic to share some of your thoughts.

Enjoy the Fourth of July holiday tomorrow,