RBC Insurance plans to get into the guaranteed income business in 2009, and other bank owned life insurers may join it.

“The payout phase of the retiree cycle is coming down the pipe,” says Neil Skelding, president and CEO of RBC Insurance. “GMWB is an important part of that and we’ll be participating in the market.”

Segregated funds with guaranteed minimum withdrawal benefits (or GMWB) offer a set annual payout for retirees as a percentage of the deposits in a product portfolio — normally a balanced equity portfolio — before they turn 65. Some products guarantee to payout annually until death, others stop short of that.

More than $6 billion has been invested in the GMWB funds in Canada in the past three years, and the category is projected to be a hit by Investor Economics Inc., a Toronto-based industry consultant, which says deposits could reach between $30 and $50 billion by the year 2011.

Skelding says RBC Life Insurance’s product will likely be released towards the end of this calendar year. Product design and features will be a bit more conservative compared to similar products on the marketplace already.

Toronto-based Manulife Financial Corp. was the trailblazer for the category in Canada and dominates sales. Sun Life Financial Inc., headquartered in Toronto, Desjardins Financial Group and Industrial Alliance Insurance and Financial Services Inc., both based in Quebec, and Transamerica Life Canada, ultimately owned by AEGON NV of the Netherlands, have followed suit.

Skelding says risk management practices at the bank will ensure that the product is well hedged and “probably less risky” than those versions.

“The market … is changing quite dramatically,” he says. “We’ve seen the equity exposure that some insurance companies have done and what that’s done to them.”

Product bells and whistles vary, but each invests in equities. The great volume of sales before markets collapsed in the autumn of 2008 left product providers on the hook for long-term guarantees on greatly reduced portfolios.

Internal and regulatory capital reserving requirements strained several firms. Manulife, in particular, appealed directly to the Office of the Superintendent of Financial Institutions for relief from immediate reserving requirements and received it

The equity portfolios in the RBC product will be hedged, Skelding says. (Manulife’s was not, but it is now.)

Gordon Henderson, president and CEO of BMO Life Insurance Co., says the firm is still considering its options but he notes that when BMO bought AIG Life Insurance Company of Canada Inc., it kept the underwriting and marketing expertise that make product development possible.

AIG Canada had been planning to get into the GMWB market before its parent company, America International Group Inc., many billions through a business unit that was guaranteeing credit default swaps, a sort of derivative instrument for insurance on failed corporate loan covenants.

IE