In a some what surprising announcement today, sent via email to the broker and agent force that writes structured settlement annuities, Genworth Financial, the off spring of the old GE Capital, announced that they had made a business decision to exit the structured settlement market.
A copy of the letter can't be produced as it was clearly marked as being for broker use only and not for viewing by the general public. However, I can paraphrase it to give you the key elements of their decision.
1. Competition in the structured settlement market has increased in the last few years, and as a result Genworth is no longer able to provide value to the brokers, the customers and still provide a meaningful return to Genworth shareholders on this product line. Clearly, this is a responsible decision by management and a recognition that in a market where information flows freely and price matters, that unless you are consistently priced in the top 5 you are most likely not going to generate enough premium to justify your continued existence in the market. Other companies that reached similar decisions over the years were ING, AEGON/Transamerica and Manulife prior to their recent merger with John Hancock.
2. Genworth will stop accepting new premium as of August 26th, 2006 for it's subsidiary life companies, First Colony Life Insurance Company, American Mayflower Life Insurance Company of NY, Genworth Life Insurance Company and Genworth Life Insurance Company of NY. However, if you have a case on a rate lock in, they will honor and accept premium on business up and until December 21, 2006 of this year. This is customary practice when a firm exits this market.
3. It is crucial to note that this is in no way an indication of a change in the financial health or stability of the companies involved, and if anything represents a responsible action by the parent company to maintain adequate profit margins and pursue profitable business lines. No policyholder or annuitant is at risk as a result of this action what so ever.
4. Genworth is NOT exiting the fixed annuity business and made a point of that in the letter. Fixed annuity business is projected to grow over the coming 25 years as boomers age and start to take distributions, and build fixed incomes for retirement, and Genworth will certainly be in the mix for the coming surge in non-qualified annuity business.
I've been saying privately and publicly that the structured settlement market was due for a contraction in the number of life markets underwriting annuities, although I will be the first to admit that I didn't think that Genworth would be the first to leave, particularly given the fact that First Colony Life almost invented the structured settlement business in the early years along with Manulife. It does sadden me to see that particular market no longer around as it was typically staffed over the years by quality people who provided good service to annuitants and brokers.
I don't think this is the last company that will come to this conclusion and I predict in the next six months that at least one, if not two more markets will come to the same decision about the cost/benefit of participating in the settlement market as it currently exists. The fact is we are a badly stagnant market as measured by gross premium written. The costs of business acquisition are going to increase dramatically as the practice of approved markets, approved brokers and in house steering is on it's last legs and life markets are going to have to compete on price, service and value added as opposed to having an oligopoly. This coupled with the transition to more and more plaintiff advisors will force a greater emphasis on disclosure of price in every case, thus making it imperative for a market to not be outside the competitive norm on pricing or risk losing market share.
I'm sorry to see them go, wish the best to the fine staff and people who work at the respective companies, but I think we have a couple more life markets left to go before this current round of consolidation is finished.