Guides
Closed blocks: what happens to policies a company stops selling
Two uses of the term: the pool protecting dividends after a demutualization, and run-off policies an insurer no longer sells. How each works and what it means.
"Closed block" has two related meanings in life insurance. In the first, it is a ring-fenced group of participating policies set up when a mutual insurer converts to a stock company, so that policyholders' expected dividends are not diluted. In the second, informal use, it is a group of policies an insurer no longer sells and runs off, often by selling or reinsuring it to a specialist. Your contract is enforceable either way; what varies is who services it and how non-guaranteed amounts such as dividends are set.
Meaning one: the demutualization closed block
When a policyholder-owned mutual insurer demutualizes, it becomes a stock company owned by shareholders. Owners of participating whole life policies had been paid dividends out of the mutual's surplus, and many bought on the expectation of continued dividends. To protect them, the converting company sets aside a closed block: a group of participating policies in force on the conversion date, backed by assets specifically earmarked to pay their contractual benefits and reasonably expected dividends.
How it works:
- No new policies are added; the block only shrinks as policies end.
- The assets, premiums and claims of the block are tracked separately from the company's other business.
- The company sets the dividend scale for the block under its usual process, using the block's own experience on investments, mortality and expenses.
- If the earmarked assets run short, the company must make up the difference from its general funds; if the block does better than planned, the extra goes to policyholders over time, not to shareholders, until the block ends.
The big conversions each created one. John Hancock demutualized on February 1, 2000; MetLife on April 7, 2000; Principal Financial Group set up a block in its 1998 holding-company reorganization and fully demutualized October 26, 2001; and Prudential on December 18, 2001. Prudential's profile notes its closed block is still run separately to pay dividends on older participating policies.
If you own an older participating policy from one of these companies, your annual statement or the company can tell you whether it is in the closed block. A policy in the block is not in worse shape than other participating policies; the point is protection.
Meaning two: run-off blocks of policies no longer sold
Insurers regularly stop selling a product line, such as universal life with a secondary guarantee, long-term care, or variable annuities, because the pricing no longer works or because they want to exit the market. The existing policies become a closed block in the informal sense: no new sales, a shrinking pool, and costs that fall on a smaller base.
Three outcomes are common:
- The insurer keeps running it. The company administers the policies itself.
- It reinsures the block. The original insurer stays legally responsible while another company takes the financial risk, sometimes the servicing too. Principal's 2022 deal of about $25 billion of retail fixed annuity and secondary-guarantee universal life business with a Talcott affiliate is an example, and Principal still services it.
- It sells or transfers the business to a specialist. Specialist consolidators on this site include Talcott Financial Group, Wilton Re, Resolution Life and Everlake Life. Wilton Re grew by acquiring blocks such as Conseco Life, Allstate's New York company and Continental Assurance. Resolution Life bought most of Voya's in-force individual life business, which closed January 4, 2021. See when your life insurance policy is sold to another company for how to read a transfer notice, and private equity's push into life insurance for the ownership debate.
The trade-offs
| Issue | Why it can help | Why it can concern |
|---|---|---|
| Specialist administrators | Systems and focus built for old policies | Servicing transitions can bring errors or delays |
| Reinsurance or sale | Spreads risk; releases capital for the seller | The new carrier may be less familiar or have different financial strength |
| Closed participating block | Dividends protected by dedicated assets | Dividends still vary and are not guaranteed |
| Run-off of a universal life block | Policies stay in force | Charges or crediting rates can change within contract limits, which sparked lawsuits (see universal life cost-of-insurance increases and what to do) |
Because a run-off block cannot add new policies, its costs and claims experience are spread over a shrinking, aging group, and charge increases on older universal life blocks have been a recurring consumer issue. Increases are limited by the contract's guaranteed maximums and subject to regulatory review. Class actions have been filed over cost-of-insurance increases on some blocks; outcomes depend on the policy language and the facts. Many specialists and insurers also say that taking over a block lets them invest in service systems that a seller exiting the business would not.
A hypothetical example
Say a 70-year-old owns a universal life policy from 1999 that her original insurer reinsured to a consolidator in a deal she read about in the news. Her annual statement still names the original insurer, her death benefit and guaranteed maximum charges are unchanged, and the servicing phone number is new. Her to-do list is short: confirm the legal insurer, request an in-force illustration, and check that the projected values still reach her life expectancy. If the illustration shows the policy lapsing at age 85, she can decide whether to add premium, reduce coverage or shop for alternatives, rather than discovering the problem at 84.
What to do if your policy is in a closed block
- Find the legal insurer and administrator on your latest statement.
- Ask for an in-force illustration (see how to request and read an in-force illustration) every year or two for universal life, to see whether projected values still support the coverage you need.
- For participating policies, review the annual dividend notice; it will tell you the scale and, where relevant, dividend option.
- Check AM Best, S&P, Moody's and Fitch ratings explained for the company carrying the risk.
- Before surrendering, compare with the cost of replacing coverage at your current age and health; see replacing a life insurance policy: when it makes sense.
Key takeaways
- A demutualization closed block protects dividends for participating policies in force at conversion; the company must cover shortfalls.
- Informally, a closed block is any group of policies no longer sold; they are often reinsured or sold to specialists.
- Your contract stays enforceable, but servicing, dividends and non-guaranteed charges can change within its limits.
- Track your legal insurer, ask for in-force illustrations on universal life, and avoid hasty replacement.