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The State of the L/H Insurance Industry

The State of the L/H Insurance Industry. SIR Webinar June 6, 2011 Download at: www.iii.org/presentations. Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist Insurance Information Institute  110 William Street  New York, NY 10038

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The State of the L/H Insurance Industry

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  1. The State ofthe L/H Insurance Industry SIR Webinar June 6, 2011 Download at: www.iii.org/presentations Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist Insurance Information Institute  110 William Street  New York, NY 10038 Office: 212.346.5540  Cell: 917.494.5945  stevenw@iii.org  www.iii.org

  2. Profitability Relatively SteadyBut Unspectacular 2

  3. Life/Annuity Industry Profits, 2001-2010 Billions 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. Sources: NAIC, via SNL Financial; Insurance Information Institute. eSlide – P6466 – The Financial Crisis and the Future of the P/C

  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 Industry Source: Fortune, May 23, 2011; Insurance Information Institute. 4 12/01/09 - 9pm eSlide – P6466 – The Financial Crisis and the Future of the P/C

  5. Don’t Call Itthe “Life Insurance” Industry Annuities DominateIndustry Premiums and Profits 5

  6. Distribution of Premiums byLine of Business, 1996-2010 Insurance 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. Source: NAIC, via SNL Financial; I.I.I.

  7. U.S. Life/Annuity Insurance IndustryProfit Sources, by Percent, 2010 44.3% 18.4% 24.3% Sources: NAIC Annual Statements, p. 6, from SNL Financial; I.I.I. calculations

  8. Revenues and Revenue Drivers 8

  9. L-A Direct Premiums by Market,($ Billions) 2010 Source: NAIC Annual Statement data, from SNL Financial; I.I.I. calculations

  10. Individual Life Insurance & AnnuityPremiums Generally Track DPl Individual Life Insurance & Annuity Premiums ($ Billion) DPI ($ Trillion) Individual Life Insurance & Annuity premiums dropped 31% in 2009 vs. 2008,although DPI rose by 1% Sources: www.bea.gov andSNL Financial; I.I.I. calculations

  11. Group Insurance Premiums (line)Track Nonfarm Employment (bars) Sources: NAIC Annual Statements, via SNL Financial; http://www.bls.gov/ces/

  12. Ordinary Life InsuranceLapse Rates, 1996-2010 2008-09 recession Was the 2002 spike in lapse rates related to the 2001 recession? Sources: NAIC Annual Statements, p. 25 line 15 (lapses) and average of lines 1 and 21, from SNL Financial; I.I.I. calculations

  13. Insurance Industry Employment Trends 16

  14. Employment in Life/Annuity Insurers vs. Service Industries, Monthly, 1990–2011* Thousands Millions *As of April 2011; Not seasonally adjusted Sources: US Bureau of Labor Statistics; Insurance Information Institutes. 17 12/01/09 - 9pm eSlide – P6466 – The Financial Crisis and the Future of the P/C

  15. Investments 19

  16. Distribution of L/A Insurer InvestedAssets (General Account), 2010 Sources: ACLI Life Insurers Fact Book 2010, p. 12; I.I.I.

  17. Net Rate on L/A General Account AssetsTends to Follow 10-Year US T-Note 2009 net earned rate on General Account Invested Assets: 5.25% *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

  18. Policy Loans Increase During/Followinga Recession, but Also in Boom Times Billions in Loans GDP, Billions July 1981-November 1982 recession July 1990-March 1991 recession March 2001-November 2001 recession Sources: http://www.bea.gov/national/xls/gdplev.xls , ACLI Life Insurers Fact Book 2010, p. 11.

  19. Financial Strength The Industry HasWeathered the Storms Well 23

  20. Distribution of A.M. Best Ratingsfor L-H Insurers, 2000-2010 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 Source: The Insurance Forum, September issue, various years

  21. Number of Impaired L/H Insurers,1976–2010 Average number of impairments, 1976-2010: 18 Compare this stellar performance in 2008-09 with that of banks. 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. Source: A.M. Best Special Report “1976-2010 Impairment Review”, published May 23, 2011; Insurance Information Institute.

  22. Markets: People Over 60? The Older Generations Might Boost Economic Growth and Life/Annuity Purchases by Continuing to Work 26

  23. Number Employed, Ages 55and Over, 2006:Q2-2011:Q1 Millions The “Great Recession” Employment by workers age 55 and over—especially women—grew in spite of the recent recession. This trend is likely to continue. Source: US Bureau of Labor Statistics, http://www.bls.gov/web/cpseed6.pdf seasonally adjusted quarterly averages

  24. Percent Change* in Applications forIndividual U.S. Life Insurance Policies Age 60-and-over is the only group consistently increasing life insurance applications. The 0-44 age group still represents the majority of the premium volume, but this has been declining over time. *vs. same month, prior year Source: MIB Life Index, monthly releases

  25. Insurance Information Institute Online: www.iii.org Thank you for your timeand your attention! Download at: www.iii.org/presentations

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