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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 • 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
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
VariableUniversal Life • Sales followed stock market • Peaked in 2000 • Equity-Indexed UL
U.S. Individual Life Annualized Premium Market Share Source: LIMRA’s U.S. Individual Life Insurance Sales Trends, 1975-2010
US Life Insurance Ownership (Percent of Households) Source: LIMRA Household Trends in U.S. Life Insurance Ownership
Annuity Market • Variable or Fixed • Deferred and Immediate • Tax-qualified and Non Tax-Qualified • Longevity
Annuity Sales % Change 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 share
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 firstname.lastname@example.org