Financial

LIFE/HEALTH: FINANCIAL

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 fixed 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.

 

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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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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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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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.

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 2013 independent agents held 49 percent of the new individual life insurance sales market, followed by affiliated (i.e., captive) agents with 41 percent, direct marketers with 4 percent and others accounting for the remaining 6 percent, according to LIMRA.

 

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.