Whether measured by premium income or by assets, traditional life insurance is no longer the primary business of many companies in the life insurance industry. The emphasis has shifted to the underwriting of annuities, a sector of the life business that accounted for 46 percent of direct premiums written in 2017. Annuities are contracts that accumulate funds and/or pay out a fixed or variable income stream. An income stream can be for a set time period or over the lifetimes of the contract holder or his or her beneficiaries. Accident and health insurance, which include distinctive products that should not be confused with traditional health insurance, account for 28 percent of direct premiums written. Traditional life insurance products such as universal life and term life for individuals, and group life, remain an important part of the business, accounting for the remaining 27 percent of direct premiums written. In addition to annuities, accident and health, and life insurance products, life insurers may offer other types of financial services such as asset management.
Traditional health insurance, whose premiums and other activities are not included in this section and are not considered a part of the life/annuity sector, are described on page __, under Private Health Insurance. Health insurance pays for medical, surgical and hospital services received by the insured, as well as routine and preventive care, usually within a network format. There are many types of plans available and most include a deductible paid for by the insured, and benefits received are tax-free. Accident and health insurance, which is included in the life/annuity and property/casualty sectors, encompasses a variety of specialty products related to health, such as those that reimburse insureds for the time they spend in a hospital or are disabled, long-term care, short- and long-term disability, and critical or catastrophic illness insurance. Accident and health insurance are not meant to replace health insurance.
According to S&P Global Market Intelligence, in 2017 the life/annuity insurance industry posted a 6.8 percent increase in net income after taxes, following a 2.2 percent decrease in 2016. Net income before capital gains was just about flat compared with 2016, but a smaller capital gains loss resulted in a $2.7 billion increase in 2017 in net income compared with 2016. Premiums and annuity considerations were down slightly in 2017 compared with 2016 despite life insurance premiums rising by 19.2 percent. Expenses fell by 1.0 percent in 2017. Capital and surplus rose to $394.5 billion in 2017 from $380.7 billion in 2016, according to S&P Global Market Intelligence.
Life/annuity and property/casualty (P/C) insurers are key players in capital markets, with $8.5 trillion in cash and invested assets in 2017, according to S&P Global Market Intelligence. Life insurance and annuity cash and invested assets totaled $4.1 trillion in 2017, and separate accounts assets and other investments totaled $2.7 trillion, while P/C insurer cash and invested assets were $1.7 trillion in 2017.
Life insurer benefit payments are predictable, since life insurance policies and annuity contracts are long-term products, and generally are in force for 10 years or longer. Thus, life insurers invest primarily in long-term products. In 2017, life insurers, excluding separate accounts, invested 73 percent of their assets in bonds and 3 percent in corporate stocks. (See chart, Investments, Life/Health Insurers, 2016-2017.) In addition, life insurers invested 12 percent of their assets in mortgage loans on real estate, investments that may take seven years or longer to mature. Separate accounts support many products that fall under the umbrella of the life/annuities sector. For example, variable annuities operate like mutual funds and compete with them because their earnings vary as they invest in many different vehicles.
($ billions, end of year)