State of the U.S. Life
Insurance Industry
Robert Gomez
March 1, 2012
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
• The first life insurance company in the U.S.
• Established 1759
Today’s Discussion
1.
2.
3.
4.
Industry Outlook
Life Insurance Trends
Annuity Market
On the Horizon
Industry Outlook
• Strengths
– Capitalization restored to pre-crisis levels
– Liquidity position significantly improved
– Credit losses on corporate bond portfolios declining
– Stronger enterprise risk management
Industry Outlook
• Weaknesses
– Persistent low interest rate environment
– Eurozone contagion risk
– Fragile global economic recovery
– Potential further downgrade of U.S. credit rating
• Overall Outlook for 2012 = Stable (unchanged from 2011)
Industry Outlook
• Qualities of Top Insurers
– Strong brand name
– Broad & varied distribution channels
– Product diversity
– Top quality service
– Advanced technology
– Pricing power
Question
• Which life insurer held the most assets at year-end 2010?
Answer
• Met Life
• How much?
• $290 billion
Market Outlook
• Uncertainties
– Investments
– Interest Rates
– Distribution
16
20
14
18
16
12
14
10
12
8
10
6
8
6
4
4
2
2
0
0
1975
1980
1985
1990
1995
2000
2004
2009
Policies Sold (million)
Annualized Premium ($bil)
U.S. Individual Life Sales Trends
Term Life Insurance
• Most popular product
• From insurer’s perspective:
– Competitive market
– Little flexibility in premium changes
– Sensitive to mortality
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
Universal Life
• Flexible premiums
• Unbundled product
• Secondary Guarantees
– Specified Premium
– Shadow Accounts
– Concern over profitability & level of reserves
Variable Universal Life
• Sales followed stock market
• Peaked in 2000
• Equity-Indexed UL
Variable Market Share
U.S. Individual Life Annualized Premium
Market Share
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1976
1981
1986
Whole Life
1991
Term Life
1996
Universal Life
Source: LIMRA’s U.S. Individual Life Insurance
Sales Trends, 1975-2010
2001
2006
VL/VUL
US Life Insurance Ownership
(Percent of Households)
Source: LIMRA Household Trends in U.S. Life Insurance Ownership
Life Insurance Ownership
Amount of Life Insurance
Annuity Market
•
•
•
•
Variable or Fixed
Deferred and Immediate
Tax-qualified and Non Tax-Qualified
Longevity
Annuity Sales ($billion)
200
180
160
140
120
100
80
60
40
20
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Deferred Variable
Deferred Fixed
Immediate
Annuity Sales % Change
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
-10.00%
-20.00%
-30.00%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
-40.00%
Deferred Variable
Deferred Fixed
Immediate
Source: LIMRA U.S. Individual Annuity Yearbook & U.S. Individual
Annuities
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
Fixed Annuities – Deferred
• Guaranteed interest rates
• Book Value Surrenders vs. Market Value Adjustments
• Equity Indexed
– Growing market
100%
share
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2000
2002
2004
Deferred Variable
2006
Indexed
2008
2010
Other Deferred Fixed
Fixed Annuities - Immediate
• Mitigates post retirement uncertainties
• Most popular types have fixed period of guaranteed payments with
life contingencies
• Difficult purchase for many consumers
• Potential for strong growth in the future
Question
• Which state was the first to forbid gender discrimination in
insurance rate-setting?
Answer
• Montana, in 1985
On the Horizon
• Regulation
• Principle Based Approach
• Baby boomers
– LTC combination products
– Longevity insurance
• Pandemic Scenario
• Life Settlements
• Genetic Testing
Robert Gomez ASA, MAAA
State Farm Life/Health Actuarial
robert.gomez.psa0@statefarm.com