Capacity is King
March 12, 2009 - Back to Deck's Page
Capacity is King
The current market dilemma—quality insurance carriers suffering from asset losses combined with the unwillingness to raise expensive new capital is causing restrictions on new annuity business—is alarming to all of us marketing fixed annuity products. There is a prevailing attitude that hanging on to present surplus of capital is more important than writing too much new annuity business.
This powerful one-two punch is requiring carriers to change their marketing approach like we have never seen before. Carriers are restricting new contracts, transfers of contracts, product sales, and/or lowering the value of the annuity’s proposition to the policyholder. Ironically, unlike new annuity sales, life insurance sales are non-threatening to capital. It takes approximately 12% of set-aside capital each time an annuity is sold, hence the drain on capital to continue writing large amounts of annuities.
Our office will continue to monitor the capacity capabilities of carriers and strongly recommend that all producers pay close attention to the financial viability of the carriers being recommended for both fixed and fixed index annuity sales.
2009 will prove to be the year that surplus capital of insurance carriers dictates the amount of annuity premium available to be written. Stay tuned.
Deck McCormick
CEO
InSource, Inc.