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Financial Health of the Fraternal System

Financial Health of the Fraternal System. Presented to the Joint Presidents’ and Fraternal operations Section Mid-Year Meeting April 8, 2013. Agenda. 2012 Year in Review – Life/Health Industry Alliance Solvency Measures Operational Measures Investment Measures Industry Outlook.

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Financial Health of the Fraternal System

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  1. Financial Health of the Fraternal System

    Presented to the Joint Presidents’ and Fraternal operations Section Mid-Year Meeting April 8, 2013
  2. Agenda 2012 Year in Review – Life/Health Industry Alliance Solvency Measures Operational Measures Investment Measures Industry Outlook
  3. 2012 Year in Review – Life/Health Industry Another challenging year due to macroeconomic environment, however… Investment portfolios again held up well Investment impairments remain low Some unrealized gains in investment portfolios Improvement in liquidity Strong regulatory capital from 2011 continued in 2012 Favorable operating earnings Continued emphasis on selling traditional life insurance Continued proactive expense management
  4. Alliance Solvency Measures Criteria Thresholds:
  5. Alliance Solvency Measures
  6. Alliance Solvency Measures Change in Admitted Assets: Societies reporting a decrease in admitted assets: 5 in 2012, 11 in 2011, 5 in 2010 All decreases in 2012 were less than 3.3% Commercial companies: 5.1% in 2012, 3.3% in 2011 and 7.1% in 2010
  7. Alliance Solvency Measures Change in Adjusted Surplus: Societies reporting a decrease in adjusted surplus: 17 in 2012, 34 in 2011, 25 in 2010 4 societies decreased > 40% in 2011, but just 1 in 2012
  8. Alliance Solvency Measures Adjusted Surplus to Authorized Control Level RBC: 6 societies were below 300% for 2012 1 societies reported this ratio below 200% 3 societies did not report RBC results, so cannot make determination
  9. Alliance Solvency Measures Assets to Liabilities Ratio: 13 societies were below 103.0% in 2012, one less than in 2011 Commercial companies – 106% in 2012, 2011, and 2010
  10. Alliance Solvency Measures Number of Societies in each Classification: Of 16 societies included in 2010, 1 merged with another society, 2 no longer on list due to improved results, 1 no longer a member of the Alliance Of 20 societies included in 2011, 1 merged with another society
  11. Operational Measures Premium Collected (in billions) System-wide, premiums collected grew 3.2% in 2012 Fraternal System Composition – 41% life premiums, 54% annuity considerations, 5% health premiums Commercial companies composition – 20% life premiums, 53% annuity considerations, 27% health premiums
  12. Operational Measures Change in Premium: Commercial companies – 6.2% increase in life premiums and 3.9% increase in annuity considerations
  13. Operational Measures Gain/Loss from Operations Societies in a net loss position: 23 in 2012, 27 in 2011, 26 in 2010 12 societies had net operating losses to surplus > 10% in 2011, but just 4 in 2012 Fraternal system: 8.6% operating return on equity, was 6.7% for 2011 Commercial companies: 18.9% pre-tax operating return on equity, was 9.1% in 2011
  14. investment Measures Net Yield on Invested Assets Commercial companies – For 2012 was 4.93%, 2011 was 5.10%
  15. investment Measures Investment Mix at December 31, 2012
  16. Industry Outlook Prevailing headwinds Continued low interest rates expected until at least mid-2015 Pressure on spreads and earnings and increase in statutory reserving Challenge to maintain yields without extending duration & taking on more risk Some companies issued public statements on the impacts of low rates over sustained periods Others are exiting, re-pricing or de-emphasizing certain lines of business, particularly interest sensitive business Regulatory/Accounting Uncertainty Principles-Based Reserving – 2015??? Risk Management and Own Risk and Solvency Assessment (RMORSA) International Financial Reporting Standards (IFRS)
  17. Questions??? Thank you! Gary T. Strohm, CPAPartner
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