Life Insurance

Life Insurance

THE LIFE/HEALTH INSURANCE INDUSTRY

Whether measured by premium income or by assets, traditional life insurance is no longer the primary business of many companies in the life/health insurance industry. Today, the emphasis has shifted to the underwriting of annuities. Annuities are contracts that accumulate funds and/or pay out a fixed or variable income stream. An income stream can be for a set period of time or over the lifetimes of the contract holder and his or her beneficiaries.

Nevertheless, traditional life insurance products such as universal life and term life for individuals as well as group life remain an important part of the business, as do disability income and health insurance.

Life insurers invest primarily in corporate bonds but also significantly in corporate equities. Besides annuities and life insurance products, life insurers may offer other types of financial services such as asset management.

While the life insurance industry continued to face challenges from a sluggish economy and low interest rates in 2012, operating results and capitalization improved as conditions in the stock market eased, according to a May, 2013 report by A.M. Best. Capital, as measured by policyholders surplus, rose from $310.4 billion in 2011 to $328.6 billion in 2012, according to SNL Financial data. The industry’s net gain from operations before federal income taxes rose significantly from $28.0 billion in 2011 to $60.5 billion in 2012, according to SNL. Net income rose from $14.4 billion to $40.9 billion during the same period, the highest level in at least dozen years according to SNL. See the income statement on page __ for further details.

LIFE INSURANCE OWNERSHIP

Sixty-two percent of all people in the United States were covered by some type of life insurance in 2013, according to LIMRA’s 2014 Insurance Barometer Study. One in four Americans said they need more life insurance in 2014, as reported in the LIMRA study. Other findings from the 2014 report include:

  • Only 1 person in 10 is very likely to purchase a life insurance policy within the next year. Sixty-three percent said that they have not purchased more life insurance because they think it is too expensive.
  • The most common financial worry among consumers is being able to afford a comfortable retirement.
  • Only 13 percent of Americans own long-term care insurance.
  • Twenty-nine percent of Americans own disability insurance.

 

INVESTMENTS, LIFE/HEALTH INSURERS, 2011-2013 (1)

($ billions, end of year)

  Amount Percent of total investments
Investment type 2011 2012 2013 2011 2012 2013
Bonds  $2,531.8 $2,543.3 $2,601.3 75.34% 74.65% 74.70%
Stocks 78.4 78.0 80.3 2.33 2.29 2.31
     Preferred stock  8.1 7.8 8.3 0.24 0.23 0.24
     Common stock  70.3 70.2 72.1 2.09 2.06 2.07
Mortgage loans on real estate 323.1 335.6 353.1 9.61 9.85 10.14
     First lien real estate mortgage loans  321.1 333.1 350.1 9.56 9.78 10.05
     Real estate loans less first liens  2.0 2.5 3.1 0.06 0.07 0.09
Real estate 20.6 21.4 22.4 0.61 0.63 0.64
     Occupied properties  5.7 5.5 5.4 0.17 0.16 0.16
     Income generating properties  14.6 15.4 16.0 0.43 0.45 0.46
     Properties for sale  0.3 0.5 0.9 0.01 0.02 0.03
Cash, cash equivalent and short term investments  96.5 106.6 94.8 2.87 3.13 2.72
Contract loans including premium notes  126.0 127.5 128.4 3.75 3.74 3.69
Derivatives 44.4 41.6 37.8 1.32 1.22 1.09
Other invested assets  124.0 136.6 145.5 3.69 4.01 4.18
Receivables for securities  2.1 2.1 3.2 0.06 0.06 0.09
Securities lending reinvested collateral assets 10.1 10.8 13.8 0.30 0.32 0.40
Write-ins for invested assets  0.2 -0.3 1.6 0.01 -0.01 0.05
Total cash and invested assets  $3,360.5 $3,407.1 $3,482.2 100.00% 100.00% 100.00%

(1) Includes cash and net admitted assets of life/health insurers.

Source: SNL Financial LC.

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LIFE/HEALTH INSURANCE: FINANCIAL RESULTS

While the life insurance industry continued to face challenges from a sluggish economy and low interest rates in 2013 for the second year in a row, operating results and capitalization improved as conditions in the stock market eased, according to a May 2014 report by A.M. Best. Capital, as measured by policyholders' surplus, rose to $331.9 billion in 2013 from $329.0 billion in 2012 according to SNL Financial. The industry’s net gain from operations before federal income taxes rose slightly to $63.7 billion in 2013 or 5.4 percent from $60.5 billion in 2012. Net income rose from $40.9 billion to $43.2 billion during the same period, the highest level in at least a dozen years according to SNL.

 

LIFE/HEALTH INSURANCE INDUSTRY INCOME STATEMENT, 2009-2013

($ billions, end of year)

  2009 2010 2011 2012 2013 Percent change,
2012-2013 (1)
Revenue            
Life insurance premiums $120.6 $100.3 $122.8 $130.5 $126.1 -3.4%
Annuity premiums and deposits 225.5 286.3 327.0 339.9 279.4 -17.8
Accident and health premiums 145.2 150.9 151.3 151.7 153.4 1.1
Credit life and credit accident and health premiums 1.6 1.6 1.6 1.6 1.4 -7.2
Other premiums and considerations 0.5 23.1 2.1 2.2 2.3 4.4
Total premiums, consideration and deposits $493.4 $562.2 $604.8 $626.0 $562.8 -10.1%
Net investment income 156.6 164.1 167.3 166.9 167.9 0.6
Reinsurance allowance 61.5 -29.3 -16.3 -30.8 -21.2 -31.0
Separate accounts revenue 20.4 23.4 26.1 29.5 31.4 6.5
Other income 44.9 52.9 53.1 60.3 43.1 -28.6
Total revenue $776.7 $773.3 $835.0 $851.9 $783.9 -8.0%
Expense            
Benefits 230.1 231.7 239.1 242.0 250.9 3.7
Surrenders 228.7 216.8 237.3 245.7 248.8 1.2
Increase in reserves 99.2 96.2 141.2 83.8 86.2 2.9
Transfers to separate accounts 11.1 29.3 32.4 61.6 -0.8 -101.3
Commissions 48.5 48.9 51.4 52.6 53.0 0.8
General and administrative expenses 52.1 54.7 56.5 57.3 58.5 2.2
Insurance taxes, licenses and fees 7.1 7.5 7.8 8.0 8.2 1.9
Other expenses 7.4 2.2 8.1 6.7 -0.4 -105.6
Total expenses $684.2 $687.3 $773.8 $757.7 $704.5 -7.0%
Net income            
Policyholder dividends 15.0 15.0 15.1 15.2 15.7 3.2
Net gain from operations before Federal income tax 61.0 53.1 28.0 60.5 63.7 5.4
Federal income tax 10.5 8.6 4.7 9.9 8.6 -13.2
Net income before capital gains $50.3 $44.1 $22.9 $50.3 $55.2 9.6%
Net realized capital gains (losses) -28.7 -16.0 -8.5 -9.4 -12.0 27.3
Net income $21.5 $28.0 $14.4 $40.9 $43.2 5.5%
Pre-tax operating income 61.0 53.1 28.0 60.5 63.7 5.4

(1) Calculated from unrounded data.

Source: SNL Financial LC.

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LIFE/HEALTH INSURER FINANCIAL ASSET DISTRIBUTION, 2007-2011

($ billions)

  2007 2008 2009 2010 2011
Total financial assets $4,949.7 $4,515.5 $4,823.9 $5,176.3 $5,340.2
Checkable deposits and currency 58.3 82.8 50.7 51.7 54.8
Money market fund shares 21.6 39.2 33.7 21.0 25.8
Security repurchase agreements (1) 2.7 8.0 10.2 10.9 10.7
Credit market instruments 2,871.2 2,882.8 3,022.6 3,174.2 3,323.9
     Open market paper 41.7 38.3 49.8 40.9 40.9
     U.S. government securities 453.5 471.9 505.4 532.6 549.8
          Treasury 70.6 105.7 133.5 156.6 162.7
          Agency- and GSE (2)-backed securities 382.9 366.2 371.9 376.0 387.1
     Municipal securities 41.4 47.1 73.1 112.3 122.6
     Corporate and foreign bonds 1,862.6 1,817.0 1,927.2 2,030.2 2,128.7
     Other loans and advances 145.8 166.1 140.9 140.7 148.7
     Mortgages 326.2 342.4 326.1 317.5 333.2
Corporate equities 1,464.6 1,001.7 1,208.5 1,402.6 1,443.0
Mutual fund shares 188.4 121.0 140.8 155.7 150.1
Miscellaneous assets 342.9 380.1 357.6 360.3 331.9

(1) Short-term agreements to sell and repurchase government securities by a specified date at a set price.
(2) Government-sponsored enterprise.

Source: Board of Governors of the Federal Reserve System, June 7, 2012.

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PREMIUMS BY LINE

Measured by premiums written, annuities are the largest life/health product line, followed by health insurance (also referred to in the industry as accident and health) and life insurance. Life insurance policies can be sold on an individual, or "ordinary," basis or to groups such as employees and associations. Accident and health insurance includes medical expense, disability income and long-term care. Other lines include credit life, which pays the balance of a loan if the borrower dies or becomes disabled, and industrial life, small policies whose premiums are generally collected by an agent on a weekly basis.

 

DIRECT PREMIUMS WRITTEN BY LINE, LIFE/HEALTH INSURANCE INDUSTRY, 2011-2013

($000)

  2011 2012 2013
Lines of insurance Direct premiums
written (1)
Percent
of total 
Direct premiums
written (1)
Percent
of total 
Direct premiums
written (1)
Percent
of total 
Annuities            
Ordinary individual annuities $212,365,662 32.3% $192,291,621 28.1% $198,862,072 30.7%
Group annuities 122,453,628 18.6 164,069,697 23.9 120,091,136 18.6
Total $334,819,290 50.9% $356,361,318 52.0% $318,953,208 49.3%
Life            
Ordinary life 130,935,596 19.9 132,640,130 19.4 129,963,644 20.1
Group life 31,478,628 4.8 34,420,250 5.0 33,532,415 5.2
Credit life (group and individual) 1,224,617 0.2 1,129,433 0.2 990,170 15.3
Industrial life 173,147 (2) 165,688 (2) 146,248 (2)
Total $163,811,988 24.9% $168,355,500 24.6% $164,632,477 25.4%
Accident and health (3)            
Group 87,795,765 13.4 90,647,379 13.2 94,705,454 14.6
Other 69,851,576 10.6 68,870,879 10.1 67,677,104 10.5
Credit 929,424 0.1 954,569 0.1 966,052 0.1
Total $158,576,766 24.1% $160,472,827 23.4% $163,348,610 25.2%
All other lines 2,404 (2) 2,574 (2) 3,027 (2)
Total, all lines (4) $657,210,448 100.0% $685,192,219 100.0% $646,937,321 100.0%

(1) Before reinsurance transactions.
(2) Less than 0.1 percent.
(3) Excludes accident and health premiums reported on the property/casualty and health annual statements.
(4) Excludes deposit-type funds.

Source: SNL Financial LC.

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CREDIT LIFE INSURANCE

Credit life insurance, a form of decreasing term insurance, protects creditors such as banks. The borrower pays the premium, generally as part of the credit transaction, to cover the outstanding loan in the event he or she dies. The face value of a policy decreases as the loan is paid off until both equal zero. When loans are paid off early, premiums for the remaining term are returned to the policyholder. Credit accident and health, a similar product, provides a monthly income in the event the borrower becomes disabled.

 

CREDIT LIFE, AND CREDIT ACCIDENT AND HEALTH INSURANCE DIRECT PREMIUMS WRITTEN, 2004-2013

($000)

Year Credit life Credit accident and health
2004 $1,526,021 $1,554,325
2005 1,607,487 1,522,791
2006 1,564,124 1,442,604
2007 1,631,338 1,407,579
2008 1,563,207 1,251,052
2009 1,248,710 964,781
2010 1,247,848 930,578
2011 1,226,326 930,318
2012 1,159,524 957,294
2013 977,557 968,691

Source: SNL Financial LC.

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TOP U.S. LIFE/HEALTH INSURANCE GROUPS BY REVENUES, 2011 (1)

($ millions)

Rank Group Revenues
1 MetLife $70,641
2 Prudential Financial 49,045
3 New York Life Insurance 34,394
4 TIAA-CREF 34,079
5 Northwestern Mutual 24,861
6 Massachusetts Mutual Life Insurance 24,226
7 Aflac 22,171
8 Lincoln National 10,636
9 Guardian Life Insurance Co. of America 10,571
10 Genworth Financial 10,344
11 Unum Group 10,278
12 Reinsurance Group of America 8,830
13 Principal Financial 8,710
14 Thrivent Financial for Lutherans 7,843
15 Mutual of Omaha Insurance 5,974
16 Pacific Life 5,879
17 Western & Southern Financial Group 4,986

(1) Revenues for insurance companies include premium and annuity income, investment income and capital gains or losses but exclude deposits. Based on companies and categories in the Fortune 500. Each company is assigned only one category, even if it is involved in several different industries.

Source: Fortune.

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DISTRIBUTION CHANNELS

Life insurance was once sold primarily by career life agents, captive agents that represent a single insurance company, and by independent agents, who represent several insurers. Now, life insurance is also sold directly to the public by mail, telephone and through the Internet. In addition, in the 1980s insurers began to market annuities and term life insurance through banks and financial advisors, professional groups and the workplace. A large portion of variable annuities, and a small portion of fixed annuities, are sold by stockbrokers. In 2011 independent agents held 49 percent of the new individual life insurance sales market, followed by affiliated (i.e., captive) agents with 40 percent, direct marketers with 4 percent and others accounting for the remaining 7 percent, according to LIMRA

ONLINE SALES

One in four adults (25 percent) would prefer to purchase life insurance directly via the Internet, by mail or over the phone, according to the 2011 Insurance Barometer study by the Life and Health Insurance Foundation for Education (LIFE) and LIMRA. Sixty-four percent would prefer to buy their life insurance from an insurance or financial professional, down from 80 percent in 1996. Younger consumers showed the most interest in purchasing life insurance through the Internet. Among people age 25 to 44, 31 percent said they would prefer to buy directly, with three in four of those individuals citing the Internet as their preferred means of direct buying.

 

LIFE INDIVIDUAL MARKET SHARE BY DISTRIBUTION CHANNEL, 2004-2013

(Based on first year collected premium)

(1) Includes brokers, stockbrokers and personal producing general agents.
(2) Includes career, multiline exclusive and home service agents.
(3) No producers are involved. Excludes direct marketing efforts involving agents.
(4) Includes financial institutions, worksite and other channels.
(5) Estimate.

Source: LIMRA’s U.S. Individual Life Insurance Sales Survey and LIMRA estimates.

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WORKSITE LIFE INSURANCE SALES BY LINE OF BUSINESS, 2013

(1) Short-term and long-term disability.

Source: Eastbridge Consulting Group, Inc.

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  • Worksite marketing is the selling of voluntary (employee-paid) insurance and financial products at the worksite. The products may be on either an individual or group platform and are usually paid through periodic payroll deductions.
  • Worksite sales of life and health insurance totaled $6.64 billion in 2013, up about 4.3 percent from 2012.

 

TOP TEN WRITERS OF INDIVIDUAL LIFE INSURANCE BY DIRECT PREMIUMS WRITTEN, 2013

($000)

Rank Group/company Direct premiums written (1) Market share
1 Northwestern Mutual Life Insurance Co. $9,469,028 8.1%
2 MetLife Inc. 6,743,722 5.7
3 New York Life Insurance Group 6,234,927 5.3
4 Aflac Inc. 5,750,188 4.9
5 Lincoln National Corp. 5,436,152 4.6
6 Manulife Financial Corp. 4,859,644 4.1
7 Prudential Financial Inc. 4,822,805 4.1
8 Massachusetts Mutual Life Insurance Co. 3,988,732 3.4
9 State Farm Mutual Automobile Insurance 3,976,209 3.4
10 AEGON 3,766,265 3.2

(1) Before reinsurance transactions. Based on U.S. total, includes territories. Excludes annuities, accident and health, deposit-type contract funds and other considerations.

Source: SNL Financial LC.

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TOP TEN WRITERS OF GROUP LIFE INSURANCE BY DIRECT PREMIUMS WRITTEN, 2013

($000)

Rank Group/company Direct premiums written (1) Market share
1 MetLife Inc.  $5,399,652 18.4%
2 Prudential Financial Inc.  3,549,561 12.1
3 Securian Financial Group  1,880,118 6.4
4 New York Life Insurance Group  1,661,198 5.6
5 Cigna Corp.  1,594,059 5.4
6 Unum Group  1,257,255 4.3
7 Hartford Financial Services  1,253,243 4.3
8 Massachusetts Mutual Life Insurance Co. 1,108,042 3.8
9 Aetna Inc.  992,859 3.4
10 StanCorp Financial Group Inc.  780,390 2.7

(1) Before reinsurance transactions. Based on U.S. total, includes territories. Excludes annuities, accident and health, deposit-type contract funds and other considerations.

Source: SNL Financial LC.

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TOP TEN UNDERWRITERS OF BANK LIFE INSURANCE PREMIUMS, BY TOTAL NEW PREMIUMS, 2013

($ millions)

Rank Company Premiums
1 Liberty Life of Boston $400.9
2 Great West L & A 270.4
3 OneAmerica 119.4
4 Western & Southern Group 61.8
5 American General 35.4
6 Protective 26.5
7 CUNA 22.7
8 Vantis Life 4.0
9 Symetra 0.9
10 Ohio National 0.3

Source: Bank Insurance and Securities Research Associates (BISRA).

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