In early December, I couldn’t help but be struck by a story saying that MetLife was headed for a record year. It’s not surprising that life insurers are enjoying improved financial results as the economy and the markets improve.

What did catch my attention was the way MetLife is managing to re-engineer its revenue mix. In short, the company’s results are improving because it has made a conscious decision to sell fewer products tied to swings in the equity market, like variable annuities.

MetLife is hardly alone. Many life carriers have increased fees or curtailed benefits associated with various products linked to longevity and the financial markets.

Other insurers including The Hartford and Sun Life have exited the variable annuity business entirely. Ditto for the long-term-care insurance business.
The timing of insurers trying to rationalize their lines of business is no coincidence. They’ve been burned by two of the worst bear markets in the last century occurring within eight years of each other.

Actuaries and other statisticians would tell you that is not supposed to happen. So who is to say it won’t happen again in a world where capital is increasingly mobile and economic change is accelerating.

Several years ago, a top insurance executive whose company had just entered the longevity insurance business acknowledged to me that even modest advances in treatments for Alzheimer’s, not outright cures, could derail the financial guardrails built into his company’s new product.

Well, guess what. The National Institute of Health, which views the combination of dementia and the demographic wave of people approaching their 70s as the next major health-care crisis, has been working with researchers and drug companies to address this challenge.

One likely outcome is that they won’t come up with a cure for the diseases, but they will invent drugs that can delay the onset of dementia for up to 15 years or so. At that point, many patients probably would become afflicted with a host of other ailments that would cause them to check out. In all likelihood, such an outcome might eliminate many of the huge costs of Alzheimer’s while creating another set of expenses insurers can only begin to imagine.

Against the backdrop of all these unknowns, it’s natural that consultants at the McKinseys of the world are telling insurers to play it cautious. What’s ironic is that exactly when so many once-derided insurance and annuity products should be reaching their years of peak demand, their purveyors are actively seeking to limit supply.

Evan Simonoff, Editor-in-Chief
E-mail me at [email protected] with your opinion.