Life Insurers Face Regulation, Rate Fears
NEW YORK (
) -- 2011 is likely to be a challenging year for the life insurers because of increased regulation the threat of declining interest rates, says Doug French, principal at
Ernst & Young
.
"It is definitely not going to be back to normal in 2011. This year is going to be more challenging than 2010. There is no end in sight for challenges," said French.
One key regulatory factor that will weigh down the life carriers are the Dodd-Frank Wall Street Reform and Consumer Protection Act. French explains that the Dodd Frank Act will impact those insurers that own banks, such as
Prudential
(PRU) - Get Report
and
MetLife
(MET) - Get Report
. Other life insurers that are considered "systemically significant" or those that frequently trade in derivatives could also fall under the Dodd-Frank regulations.
Besides the regulatory environment, low interest rates will also pose a threat to insurers' balance sheets, French added. "When the interest rate is down you are focused on expense reduction and operational efficiency, and that could mean putting off projects, cutting headcount and you will see an uptick in product redesign and the re-pricing of products," French said.
Products that insurers are most likely going to change because of interest rate declines are long term care products and no-lapse guarantee features in universal life. "You are going to have to develop products that have weaker guarantees for the customer, so you will see things like long term care benefit riders on annuities. It is basically a way to share risk with the customers. There will also likely be a weakening of guarantees or raising of premiums," French said.
French adds that due to the volatility and uncertainty in the market insurers won't be making that many acquisitions.
"People are still pretty conservative with the balance sheets. You are going to see and hear stuff, but I'm not sure you are going to see many deals get done in 2011," said French.
--Written by Maria Woehr in New York.
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