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The State ofthe L/H Insurance Industry
SIR WebinarJune 6, 2011
Download at: www.iii.org/presentations
Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief EconomistInsurance Information Institute 110 William Street New York, NY 10038Office: 212.346.5540 Cell: 917.494.5945 stevenw@iii.org www.iii.org
2
Profitability
Relatively SteadyBut Unspectacular
3
Billions
Life/Annuity Industry Profits, 2001-2010
$31.6
-$52.3
$21.5$28.1
$37.0$36.6$32.5
$25.9
$3.6
$11.0
($60)
($40)
($20)
$0
$20
$40
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Sources: NAIC, via SNL Financial; Insurance Information Institute.
The Life/Annuity industry has produced steady (if unspectacular) profits,except for years in which the industry’s investment results produced
significant realized capital losses.
4
Median ROEs for Insurers and OtherFinancial Services in the “Fortune 500,” 2010
Profits as a % of Owners’ Equity:Median of Fortune 500 Companies in Selected Industries
Source: Fortune, May 23, 2011; Insurance Information Institute.
12.0%
10.0%
9.0%
8.0%
8.0%
8.0%
5.0%
3.5%
12.0%
0% 2% 4% 6% 8% 10% 12% 14%
Health Insurance/Managed Care
Diversified Financials
P/C Insurance (stock)
L/A Insurance (stock)
Securities
Commercial Banks
L/A Insurance (mutual)
P/C Insurance (mutual)
Fortune 500
Industry
5
Don’t Call Itthe “Life Insurance” Industry
Annuities DominateIndustry Premiums and Profits
Distribution of Premiums byLine of Business, 1996-2010
Source: NAIC, via SNL Financial; I.I.I.
Life Insurance is now 17.5% of total premiums, down from 28% a dozen years ago. Annuities have been the main premium source for decades.
Insurance
U.S. Life/Annuity Insurance IndustryProfit Sources, by Percent, 2010
Sources: NAIC Annual Statements, p. 6, from SNL Financial; I.I.I. calculations
44.3%
18.4%24.3%
8
Revenues and Revenue Drivers
L-A Direct Premiums by Market,($ Billions) 2010
Source: NAIC Annual Statement data, from SNL Financial; I.I.I. calculations
Individual Life Insurance & AnnuityPremiums Generally Track DPl
Sources: www.bea.gov and SNL Financial; I.I.I. calculations
DPI ($ Trillion)
Individual Life Insurance & Annuity Premiums ($ Billion)
Individual Life Insurance & Annuity premiums dropped
31% in 2009 vs. 2008,although DPI rose by 1%
Group Insurance Premiums (line)Track Nonfarm Employment (bars)
Sources: NAIC Annual Statements, via SNL Financial; http://www.bls.gov/ces/
Ordinary Life InsuranceLapse Rates, 1996-2010
Sources: NAIC Annual Statements, p. 25 line 15 (lapses) and average of lines 1 and 21, from SNL Financial; I.I.I. calculations
Was the 2002 spike in lapse rates
related to the 2001 recession?
2008-09 recession
16
Insurance Industry Employment Trends
17
Employment in Life/Annuity Insurers vs. Service Industries, Monthly, 1990–2011*
*As of April 2011; Not seasonally adjustedSources: US Bureau of Labor Statistics; Insurance Information Institutes.
Millions
80
85
90
95
100
105
110
115
120
Jan
1990
Jul 1
990
Jan
1991
Jul 1
991
Jan
1992
Jul 1
992
Jan
1993
Jul 1
993
Jan
1994
Jul 1
994
Jan
1995
Jul 1
995
Jan
1996
Jul 1
996
Jan
1997
Jul 1
997
Jan
1998
Jul 1
998
Jan
1999
Jul 1
999
Jan
2000
Jul 2
000
Jan
2001
Jul 2
001
Jan
2002
Jul 2
002
Jan
2003
Jul 2
003
Jan
2004
Jul 2
004
Jan
2005
Jul 2
005
Jan
2006
Jul 2
006
Jan
2007
July
2007
Jan
2008
July
2008
Jan
2009
July
2009
Jan
2010
July
2010
Jan
2011
300
350
400
450
500
550
600
Service Industries Life/Annuity CarriersThousands
19
Investments
Distribution of L/A Insurer InvestedAssets (General Account), 2010
Sources: ACLI Life Insurers Fact Book 2010, p. 12; I.I.I.
3%
6%
9%
12%
15%
19
80
81
82
83
84
19
85
86
87
88
89
19
90
91
92
93
94
19
95
96
97
98
99
20
00
01
02
03
04
20
05
06
07
08
09
20
10
11*
L/H Net Rate, Gen'l Acct 10-Year Treasury Note
Net Rate on L/A General Account AssetsTends to Follow 10-Year US T-Note
*forecast from May 2011 issue of Blue Chip Economic Indicators Sources: ACLI Life Insurers Fact Book 2010, p. 40; http://federalreserve.gov/releases/h15/data/Annual/H15_TCMNOM_Y10.txt
2009 net earned rate on General
Account Invested Assets: 5.25%
Policy Loans Increase During/Followinga Recession, but Also in Boom Times
Sources: http://www.bea.gov/national/xls/gdplev.xls , ACLI Life Insurers Fact Book 2010, p. 11.
Billions in Loans GDP, Billions
March 2001-November
2001 recession
July 1990-March 1991 recession
July 1981-November
1982 recession
Financial Strength
23
The Industry HasWeathered the Storms Well
Distribution of A.M. Best Ratingsfor L-H Insurers, 2000-2010
Source: The Insurance Forum, September issue, various years
The Percent of A/A- L-H Insurers Has Grown.Today 2/3 of L-H Insurers Have A. M. Best Ratings of A- or Better
Number of Impaired L/H Insurers,1976–2010
61
11
71
0 12 13
12
32
16
16
16
23 2
75
54
68
13
82
41
21
11
91
81
22
61
08 1
05 5
10
38 9
13
2
0
10
20
30
40
50
60
70
80
90
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
Source: A.M. Best Special Report “1976-2010 Impairment Review”, published May 23, 2011; Insurance Information Institute.
The Number of Impairments Spiked in 1989-92, with Smaller Spikes in 1983 and 1999. But in the Financial Crisis, When Hundreds of Banks Failed,
Virtually No Life Insurers Failed.
Average number
of impairments,
1976-2010: 18
Compare this stellar performance in 2008-09 with that of banks.
26
Markets: People Over 60?
The Older Generations Might Boost Economic Growth and Life/Annuity Purchases by Continuing to Work
Number Employed, Ages 55and Over, 2006:Q2-2011:Q1
13.2
13.2
13.4
13.4
13.6
13.8
13.9
14.1
14.1
14.3
14.3
14.3
14.2
14.2
14.3
14.4
14.6
14.6
14.7
14.9
11.4
11.6
11.8
11.9
12.0
12.2
12.3
12.5
12.5
12.6
12.8
12.8
12.9
12.9
13.0
13.1
13.3
13.4
13.4
13.5
0
5
10
15
20
25
30
2006:Q2
2006:Q3
2006:Q4
2007:Q1
2007:Q2
2007:Q3
2007:Q4
2008:Q1
2008:Q2
2008:Q3
2008:Q4
2009:Q1
2009:Q2
2009:Q3
2009:Q4
2010:Q1
2010:Q2
2010:Q3
2010:Q4
2011:Q1
women men
Source: US Bureau of Labor Statistics, http://www.bls.gov/web/cpseed6.pdf seasonally adjusted quarterly averages
Employment by workers age 55 and over—especially women—grew in spite of the recent recession. This trend is likely to continue.
Millions
The “Great Recession”
-8%
-4%
0%
4%
8%
12%
16%
20%
May 0
7
Jul 0
7
Se
p 0
7
No
v 07
Jan 0
8
Mar 0
8
May 0
8
Jul 0
8
Se
p 0
8
No
v 08
Jan 0
9
Mar 0
9
May 0
9
Jul 0
9
Se
p 0
9
No
v 09
Jan 1
0
Mar 1
0
May 1
0
Jul 1
0
Se
p 1
0
No
v 10
Jan 1
1
Mar 1
1%
Cha
nge
vs P
rior
Yr
ages 0-44
ages 45-59
ages 60+
Percent Change* in Applications forIndividual U.S. Life Insurance Policies
*vs. same month, prior year Source: MIB Life Index, monthly releases
The 0-44 age group still represents the majority of the premium volume, but this has been declining over time.
Age 60-and-over is the only group consistently
increasing life insurance applications.
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Thank you for your timeand your attention!
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