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State of the U.S. Life Insurance Industry

State of the U.S. Life Insurance Industry. Katie Lenzini February 9, 2011. On the Horizon. Question. What was the significance of the Corporation for Relief of Poor and Distressed Presbyterian Ministers and of the Poor and Distressed Widows and Children of Presbyterian Ministers?. Answer.

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State of the U.S. Life Insurance Industry

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  1. State of the U.S. Life Insurance Industry Katie Lenzini February 9, 2011 On the Horizon

  2. Question • What was the significance of the Corporation for Relief of Poor and Distressed Presbyterian Ministers and of the Poor and Distressed Widows and Children of Presbyterian Ministers?

  3. Answer

  4. Today’s Discussion • Market Outlook • Life Insurance Trends • Annuity Trends • On the Horizon

  5. Market Outlook • Strengths • Economic climate improved from 2008 • Surviving companies stronger • Increased capital • Reduced expenses • Potential opportunity in middle market

  6. Market Outlook • Weaknesses • Dependency on US, global economies • Discretionary income • Riskier and more complicated products • Non-insurance competitors (banks, telemarketing, internet) • Overall Outlook = Stable (upgraded from Negative Q2 2010)

  7. Market Outlook • Qualities of Top Insurers • Strong brand name • Broad & varied distribution channel • Product diversity • Top quality service • Advanced technology • Pricing power

  8. Question • Which life insurer held the most assets at year-end 2009?

  9. Answer

  10. Market Outlook • Uncertainties • Investments • Interest Rates • Distribution

  11. Question • Where do you go for consumer information?

  12. U.S. Individual Life Sales Trends Source: LIMRA’s U.S. Individual Life Insurance Sales Trends, 1975-2009

  13. Term Life Insurance • Most popular product • From insurer’s perspective: • Competitive market • Little flexibility in premium changes • Sensitive to mortality

  14. Whole Life • High level premiums, not flexible for policyholder • From insurer’s perspective: • Mutual company uses dividends to reflect experience • Profits affected by mortality, interest, expenses, and persistency • Resurgence in popularity

  15. Universal Life • Flexible premiums • Unbundled product • Secondary Guarantees • Specified Premium • Shadow Accounts • Concern over profitability & level of reserves

  16. VariableUniversal Life • Sales followed stock market • Peaked in 2000 • Equity-Indexed UL

  17. Variable Market Share Source: LIMRA - The Future of Flexible Premium Products

  18. U.S. Individual Life Annualized Premium Market Share Source: LIMRA’s U.S. Individual Life Insurance Sales Trends, 1975-2009

  19. Life Insurance OwnershipPercentage of Households Source: LIMRA Household Trends in U.S. Life Insurance Ownership

  20. Life Insurance OwnershipAmount of Life Insurance Source: LIMRA Household Trends in U.S. Life Insurance Ownership

  21. Annuity Trends • Variable or Fixed • Deferred and Immediate • Tax-qualified available

  22. Annuity Sales Trends ($bil) Source: LIMRA U.S. Individual Annuity Yearbook & U.S. Individual Annuities

  23. Variable Annuities • Sales following stock market trends • Guarantees on account value • Guaranteed minimum death benefit • Guaranteed living benefits • Accumulation • Withdrawal • Income • From insurer’s perspective: • Risk management and hedging • Asymmetrical risk • Revenues derived from % assets • When stocks decline, so do revenues collected

  24. Fixed Annuities – Deferred • Guaranteed interest rates • Spread from fixed account earnings rate • Equity Indexed • Growing market share Source: LIMRA U.S. Individual Annuity Yearbook & U.S. Individual Annuities

  25. Fixed Annuities - Immediate • Poor sales • Opportunity for growth • Mitigate post retirement uncertainties

  26. Question • Which state was the first to forbid gender discrimination in insurance rate-setting?

  27. Answer

  28. On the Horizon • Regulation • Principle Based Approach • Baby boomers • LTC combination products • Longevity insurance • Pandemic Scenario • Life Settlements • Genetic Testing

  29. Katie Lenzini State Farm Life/Health Actuarial Katie.Lenzini.QVBL@statefarm.com

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