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Inflection Point for insurers and retirement income

|Includes: ING, MetLife, Inc. (MET), MFC, SLF

Hard to ignore the notable headlines over the past month or so as many major insurers begin to telegraph how they plan to adapt to the "new reality" of very low rates, high capital market volatility, and increased regulatory/rating agency pressure.

The Met came out at their Investor Day and said in no uncertain terms that they would exit businesses that did not meet their ROE benchmarks.  Sun Life put their money where their mouth was and actually pulled the plug on all new VA and life insurance in the U.S. (after exiting FA earlier in the year)!   ING and John Hancock likewise have exited VA businesses.  A fuller survey of the industry would show more instances of these kind of actions, I am sure.

What is all this telling us?  Obviously, one way to deal with the very difficult external environment is to not play in it!  This should provide a better playing field for those companies left who are willing to wait it out!  Re-pricing insurance products (i.e., lower guaranteed rates, etc) should make it easier for investment departments to produce target returns without stretching with added risk. 

The cost of all those product "guarantees" may finally be allowed to be fairly priced and passed on to the financial product consumer.  Consequently, waiting it out may make sense for the remaining insurance players to earn above target ROEs.  

On the flip side, financial product consumers better get used to the "new reality" and start saving more for retirement because "fairly priced" long term guarantees (if you can find them!) mean lower net returns.