The State ofthe L/H Insurance IndustrySIR WebinarJune 6, 2011Download at: www.iii.org/presentationsSteven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief EconomistInsurance Information Institute 110 William Street New York, NY 10038Office: 212.346.5540 Cell: 917.494.5945 [email protected] www.iii.org
eSlide P6466 The Financial Crisis and the Future of the P/C
*ProfitabilityRelatively Steady But Unspectacular
12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future of the P/C*BillionsLife/Annuity Industry Profits, 2001-2010Sources: NAIC, via SNL Financial; Insurance Information Institute.The Life/Annuity industry has produced steady (if unspectacular) profits, except for years in which the industrys investment results produced significant realized capital losses.
eSlide P6466 The Financial Crisis and the Future of the P/C
12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future of the P/C*Median ROEs for Insurers and OtherFinancial Services in the Fortune 500, 2010Profits as a % of Owners Equity: Median of Fortune 500 Companies in Selected Industries Source: Fortune, May 23, 2011; Insurance Information Institute.Industry
Chart1
0.12
0.1
0.09
0.08
0.08
0.08
0.05
0.035
0.12
2010 ROE
Sheet1
Health Insurance/Managed CareDiversified FinancialsP/C Insurance (stock)L/A Insurance (stock)SecuritiesCommercial BanksL/A Insurance (mutual)P/C Insurance (mutual)Fortune 500
2010 ROE12%10%9%8%8%8%5%4%12%
*Dont Call It the Life Insurance IndustryAnnuities Dominate Industry Premiums and Profits
Distribution of Premiums byLine of Business, 1996-2010Source: NAIC, via SNL Financial; I.I.I.Life Insurance is now 17.5% of total premiums, down from 28% a dozen years ago. Annuities have been the main premium source for decades.Insurance
Chart1
0.48780.28580.21250.0138
0.50040.28630.1980.0187
0.52310.28280.17430.0221
0.56720.2490.16620.0176
0.57680.24720.15670.0194
0.5450.26920.17740.0084
0.54820.27210.17940.0005
0.55040.25740.19240
0.5350.26620.1980.0007
0.52320.26450.20950.0028
0.51770.25160.22870.047
0.50780.22620.23490.031
0.51660.22830.25040.0046
0.44150.23610.31820.0042
0.49140.17460.29440.0424
Annuities
Life
A&H
Credit/Other
23.0%
Sheet1
199619971998199920002001200220032004200520062007200820092010
Annuities48.8%50.0%52.3%56.7%57.7%54.5%54.8%55.0%53.5%52.3%51.8%50.8%51.7%44.2%49.1%
Life28.6%28.6%28.3%24.9%24.7%26.9%27.2%25.7%26.6%26.5%25.2%22.6%22.8%23.6%17.5%
A&H21.3%19.8%17.4%16.6%15.7%17.7%17.9%19.2%19.8%21.0%22.9%23.5%25.0%31.8%29.4%
Credit/Other1.4%1.9%2.2%1.8%1.9%0.8%0.1%0.0%0.1%0.3%4.7%3.1%0.5%0.4%4.2%
U.S. Life/Annuity Insurance IndustryProfit Sources, by Percent, 2010Sources: NAIC Annual Statements, p. 6, from SNL Financial; I.I.I. calculations44.3%18.4%24.3%
Chart1
0.087
0.356
0.138
0.046
0.127
0.116
0.006
0.123
Profit Sources
Sheet1
Group AnnuitiesIndividual AnnuitiesIndividual LifeGroup LifeGroup A&HOther A&HCreditMisc
Profit Sources8.7%35.6%13.8%4.6%12.7%11.6%0.6%12.3%
*Revenues and Revenue Drivers
L-A Direct Premiums by Market,($ Billions) 2010Source: NAIC Annual Statement data, from SNL Financial; I.I.I. calculations
Chart1
0.447
0.375
0.178
Direct Premiums
Some of Each, 18%
Sheet1
Individual ProductsGroup ProductsSome of Each
Direct Premiums44.7%37.5%17.8%
Individual Life Insurance & AnnuityPremiums Generally Track DPlSources: www.bea.gov and SNL Financial; I.I.I. calculationsDPI ($ Trillion)Individual Life Insurance & Annuity Premiums ($ Billion)Individual Life Insurance & Annuity premiums dropped 31% in 2009 vs. 2008, although DPI rose by 1%
Chart1
236.67.6485
274.28.0097
259.38.3778
275.78.8894
272.29.2773
294.49.9157
290.410.4031
318.910.95
218.911.03
262.311.38
2011:Q111.77
Individual Life Insurance & Annuity Premiums
Disposable Personal Income
Sheet1
20012002200320042005200620072008200920102011:Q1
Individual Life Insurance & Annuity Premiums$236.6$274.2$259.3$275.7$272.2$294.4$290.4$318.9$218.9$262.3
Disposable Personal Income$7.65$8.01$8.38$8.89$9.28$9.92$10.40$10.95$11.03$11.38$11.77
Spending on Financial Services as a %of Personal Consumption Expenditures,1995:Q1-2010:Q4Sources: U.S. Bureau of Economic Analysis: http://www.bea.gov ; Insurance Information Institute.*
12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future of the P/C*Percentage of Homes with Mortgages ThatAre in Negative (and Near-Negative) Equity**No data on LA, ME, MS, SD, VT, WV, and WY Sources: CoreLogic Negative Equity Report Q4 2010 (March 8, 2011) and earlier quarterly reports; Insurance Information Institute.No improvement in the last 6 quartersIn 2010:Q4, nearly 11.1 million mortgages were under water, and another 2.4 million were within 5% of going under. Whats worseprices in many areas are still falling.Negative equity: worst states* NV: 65.4%AZ: 50.9% FL: 47.3%Negative equity: best states* OK: 6.2%ND: 6.9% NY: 7.2%
eSlide P6466 The Financial Crisis and the Future of the P/C
Group Insurance Premiums (line)Track Nonfarm Employment (bars)Sources: NAIC Annual Statements, via SNL Financial; http://www.bls.gov/ces/
Chart1
211.513131.83
202.423130.341
206.396130
217.71131.44
218.595133.703
234.8136.086
248.715137.598
242.01136.79
218.747130.81
218.747129.82
2011:Q1129.9
Group Ins Premiums
Nonfarm employment
Nonfarm Employment (millions)
Group Premiums (billions)
Sheet1
2001200220032004200520062007200820092010:Q120102011:Q1
Group Ins Premiums$212$202$206$218$219$235$249$242$219$219
Nonfarm employment131.83130.34130.00131.44133.70136.09137.60136.79130.81129.82129.90
12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future of the P/C*US Unemployment Rate ForecastsUnemployment will remain high even under the most optimistic of scenarios, but forecasts are being revised downwardsSources: Blue Chip Economic Indicators (5/11); Insurance Information Institute Stubbornly high unemployment will restrain the growth of employer-sponsored (Group) life insurance, annuities, and health insurance Quarterly, 2011:Q2 to 2012:Q4
eSlide P6466 The Financial Crisis and the Future of the P/C
Ordinary Life InsuranceLapse Rates, 1996-2010Sources: NAIC Annual Statements, p. 25 line 15 (lapses) and average of lines 1 and 21, from SNL Financial; I.I.I. calculationsWas the 2002 spike in lapse rates related to the 2001 recession?2008-09 recession
Chart1
0.0590.0644
0.05990.0673
0.05580.0613
0.0610.0617
0.06090.0648
0.06530.0587
0.09030.0662
0.06120.0574
0.06380.0543
0.05990.0492
0.06230.0493
0.05890.0509
0.0710.062
0.0610.057
0.0540.054
by number of policies
by amount of insurance
Sheet1
199619971998199920002001200220032004200520062007200820092010
by number of policies5.9%6.0%5.6%6.1%6.1%6.5%9.0%6.1%6.4%6.0%6.2%5.9%7.1%6.1%5.4%
by amount of insurance6.4%6.7%6.1%6.2%6.5%5.9%6.6%5.7%5.4%4.9%4.9%5.1%6.2%5.7%5.4%
*Insurance Industry Employment Trends
12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future of the P/C*Employment in Life/Annuity Insurers vs. Service Industries, Monthly, 19902011**As of April 2011; Not seasonally adjustedSources: US Bureau of Labor Statistics; Insurance Information Institutes.MillionsThousands
12/01/09 - 9pmeSlide P6466 The Financial Crisis and the Future of the P/C*U.S. Employment in Insurance Agencies & Brokerages: 19902011*Thousands*As of March 2011; Not seasonally adjusted. Includes all types of insurance.Note: Recessions indicated by gray shaded columns.Sources: US Bureau of Labor Statistics; National Bureau of Economic Research (recession dates); Insurance Information Institutes.As of March 2011, employment at insurance agencies and brokerages was down by 42,100 or 6.2% to 637,500 since the recession began in Dec. 2007 (compared to overall US employment decline of 6.4%)
*Investments
Distribution of L/A Insurer InvestedAssets (General Account), 2010Sources: ACLI Life Insurers Fact Book 2010, p. 12; I.I.I.
Chart1
0.71
0.023
0.104
0.037
0.038
0.087
Asset Class
Other, 8.7%
Sheet1
BondsStocksMortgages & Real EstatePolicy LoansCashOther
Asset Class71.0%2.3%10.4%3.7%3.8%8.7%
Net Rate on L/A General Account AssetsTends to Follow 10-Year US T-Note*forecast from May 2011 issue of Blue Chip Economic Indicators Sources: ACLI Life Insurers Fact Book 2010, p. 40; http://federalreserve.gov/releases/h15/data/Annual/H15_TCMNOM_Y10.txt 2009 net earned rate on General Account Invested Assets: 5.25%
Chart1
0.08060.1143
0.08530.1392
0.08870.1301
0.09080.111
0.09650.1246
0.09870.1062
0.09640.0767
0.09390.0839
0.09410.0885
0.09470.0849
0.09310.0855
0.09090.0786
0.08580.0701
0.08040.0587
0.07630.0709
0.0790.0657
0.07750.0644
0.07860.0635
0.07580.0526
0.07490.0565
0.0740.0603
0.07130.0502
0.06640.0461
0.06170.0401
0.05930.0427
0.05880.0429
0.05950.048
0.06010.0463
0.05630.037
0.05250.032
20100.032
11*0.036
L/H Net Rate, Gen'l Acct
10-Year Treasury Note
Sheet1
198081828384198586878889199091929394199596979899200001020304200506070809201011*
L/H Net Rate, Gen'l Acct8.06%8.53%8.87%9.08%9.65%9.87%9.64%9.39%9.41%9.47%9.31%9.09%8.58%8.04%7.63%7.90%7.75%7.86%7.58%7.49%7.40%7.13%6.64%6.17%5.93%5.88%5.95%6.01%5.63%5.25%
10-Year Treasury Note11.43%13.92%13.01%11.10%12.46%10.62%7.67%8.39%8.85%8.49%8.55%7.86%7.01%5.87%7.09%6.57%6.44%6.35%5.26%5.65%6.03%5.02%4.61%4.01%4.27%4.29%4.80%4.63%3.70%3.20%3.20%3.60%
Policy Loans Increase During/Followinga Recession, but Also in Boom TimesSources: http://www.bea.gov/national/xls/gdplev.xls , ACLI Life Insurers Fact Book 2010, p. 11.Billions in LoansGDP, BillionsMarch 2001-November 2001 recessionJuly 1990-March 1991 recessionJuly 1981-November 1982 recession
Chart1
41.4112789.5
48.7063128.4
52.9613255
54.0633536.7
54.5053933.2
54.3694220.3
54.0554462.8
53.6264739.5
54.2365103.8
57.4395484.4
62.6035803.1
66.3645995.9
72.0586337.7
77.7256657.4
85.4997072.2
95.9397379.7
100.467816.9
104.5498304.3
104.5078747
98.7579268.4
101.9789817
104.27310128
105.22910469.6
107.00710960.8
108.65811685.9
109.512421.9
112.91413178.4
116.04713807.5
121.88714264.6
122.714256.3
201014660.4
Policy Loans
Nominal GDP
Sheet1
1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010
Policy Loans$41.4$48.7$53.0$54.1$54.5$54.4$54.1$53.6$54.2$57.4$62.6$66.4$72.1$77.7$85.5$95.9$100.5$104.5$104.5$98.8$102.0$104.3$105.2$107.0$108.7$109.5$112.9$116.0$121.9$122.7
Nominal GDP$2,789.5$3,128.4$3,255.0$3,536.7$3,933.2$4,220.3$4,462.8$4,739.5$5,103.8$5,484.4$5,803.1$5,995.9$6,337.7$6,657.4$7,072.2$7,379.7$7,816.9$8,304.3$8,747.0$9,268.4$9,817.0$10,128.0$10,469.6$10,960.8$11,685.9$12,421.9$13,178.4$13,807.5$14,264.6$14,256.3$14,660.4
Financial Strength*The Industry Has Weathered the Storms Well
Distribution of A.M. Best Ratingsfor L-H Insurers, 2000-2010Source: The Insurance Forum, September issue, various yearsThe Percent of A/A- L-H Insurers Has Grown. Today 2/3 of L-H Insurers Have A. M. Best Ratings of A- or Better
Chart1
0.1770.3940.2360.1290.062
0.1760.4060.2150.1120.089
0.1820.4080.1940.1060.11
0.1590.4020.2150.1170.107
0.2120.4080.2120.0810.087
0.2180.4090.2080.0640.102
0.1950.490.2430.0470.025
0.1910.4940.2460.0470.021
0.1920.4960.2360.0490.026
0.1390.5340.2450.0580.023
0.1490.5310.230.0540.036
A++ or A+
A or A-
B++ or B+
B or B-
C++ or Worse
23.0%
Sheet1
20002001200220032004200520062007200820092010
A++ or A+17.7%17.6%18.2%15.9%21.2%21.8%19.5%19.1%19.2%13.9%14.9%
A or A-39.4%40.6%40.8%40.2%40.8%40.9%49.0%49.4%49.6%53.4%53.1%
B++ or B+23.6%21.5%19.4%21.5%21.2%20.8%24.3%24.6%23.6%24.5%23.0%
B or B-12.9%11.2%10.6%11.7%8.1%6.4%4.7%4.7%4.9%5.8%5.4%
C++ or Worse6.2%8.9%11.0%10.7%8.7%10.2%2.5%2.1%2.6%2.3%3.6%
Number of Impaired L/H Insurers,19762010Source: A.M. Best Special Report 1976-2010 Impairment Review, published May 23, 2011; Insurance Information Institute.The Number of Impairments Spiked in 1989-92, with Smaller Spikes in 1983 and 1999. But in the Financial Crisis, When Hundreds of Banks Failed, Virtually No Life Insurers Failed. Average number of impairments, 1976-2010: 18Compare this stellar performance in 2008-09 with that of banks.
*Markets: People Over 60?The Older Generations Might Boost Economic Growth and Life/Annuity Purchases by Continuing to Work
Number Employed, Ages 55and Over, 2006:Q2-2011:Q1Source: US Bureau of Labor Statistics, http://www.bls.gov/web/cpseed6.pdf seasonally adjusted quarterly averagesEmployment by workers age 55 and overespecially women grew in spite of the recent recession. This trend is likely to continue.MillionsThe Great Recession
Chart1
13.15211.447
13.21711.633
13.41411.787
13.36911.866
13.56911.996
13.75612.203
13.85112.28
14.06712.483
14.14812.486
14.26412.611
14.32912.784
14.29312.768
14.20312.876
14.21512.922
14.2812.978
14.41313.143
14.58713.344
14.64113.443
14.67613.375
14.89413.532
men
women
Sheet1
millions1998.11998.21998.31998.41999.11999.21999.31999.42000.12000.22000.32000.42001.12001.22001.32001.42002.12002.22002.32002.42003.12003.22003.32003.42004.12004.22004.32004.42006:Q22006:Q32006:Q42007:Q12007:Q22007:Q32007:Q42008:Q12008:Q22008:Q32008:Q42009:Q12009:Q22009:Q32009:Q42010:Q12010:Q22010:Q32010:Q42011:Q1
men4.5%4.6%4.6%5.0%4.8%5.1%5.4%5.2%5.4%5.3%5.2%5.3%5.2%5.2%5.1%5.4%5.1%5.1%5.2%5.0%5.5%5.9%5.8%5.8%5.9%6.0%6.1%6.5%13.15213.21713.41413.36913.56913.75613.85114.06714.14814.26414.32914.29314.20314.21514.28014.41314.58714.64114.67614.894
women11.44711.63311.78711.86611.99612.20312.28012.48312.48612.61112.78412.76812.87612.92212.97813.14313.34413.44313.37513.532
Number Employed, Ages 55and Over, 2006:Q2-2011:Q1Source: US Bureau of Labor Statistics, http://www.bls.gov/web/cpseed6.pdf seasonally adjusted quarterly averagesEmployment by workers age 55 and overespecially women grew in spite of the recent recession. This trend is likely to continue.MillionsThe Great Recession
Chart1
13.15211.447
13.21711.633
13.41411.787
13.36911.866
13.56911.996
13.75612.203
13.85112.28
14.06712.483
14.14812.486
14.26412.611
14.32912.784
14.29312.768
14.20312.876
14.21512.922
14.2812.978
14.41313.143
14.58713.344
14.64113.443
14.67613.375
14.89413.532
men
women
Sheet1
millions1998.11998.21998.31998.41999.11999.21999.31999.42000.12000.22000.32000.42001.12001.22001.32001.42002.12002.22002.32002.42003.12003.22003.32003.42004.12004.22004.32004.42006:Q22006:Q32006:Q42007:Q12007:Q22007:Q32007:Q42008:Q12008:Q22008:Q32008:Q42009:Q12009:Q22009:Q32009:Q42010:Q12010:Q22010:Q32010:Q42011:Q1
men4.5%4.6%4.6%5.0%4.8%5.1%5.4%5.2%5.4%5.3%5.2%5.3%5.2%5.2%5.1%5.4%5.1%5.1%5.2%5.0%5.5%5.9%5.8%5.8%5.9%6.0%6.1%6.5%13.15213.21713.41413.36913.56913.75613.85114.06714.14814.26414.32914.29314.20314.21514.28014.41314.58714.64114.67614.894
women11.44711.63311.78711.86611.99612.20312.28012.48312.48612.61112.78412.76812.87612.92212.97813.14313.34413.44313.37513.532
Percent Change* in Applications for Individual U.S. Life Insurance Policies*vs. same month, prior year Source: MIB Life Index, monthly releasesThe 0-44 age group still represents the majority of the premium volume, but this has been declining over time. Age 60-and-over is the only group consistently increasing life insurance applications.
Chart1
-0.020.0150.052
-0.0160.0460.071
-0.045-0.0170.052
-0.062-0.0410.013
-0.033-0.0140.043
-0.02-0.0070.023
-0.037-0.0220.004
-0.041-0.0190.017
-0.0280.0020.064
-0.057-0.0550.026
-0.030.0010.098
-0.073-0.0410.043
-0.039-0.0320.03
-0.023-0.0050.051
-0.0210.0060.071
-0.048-0.0010.076
-0.065-0.0370.05
-0.037-0.0130.032
-0.0430.0060.062
-0.049-0.0190.052
-0.078-0.0160.078
-0.0290.0390.149
-0.078-0.0180.077
-0.0510.0240.127
-0.07-0.0110.113
-0.040.0040.116
-0.0480.0080.128
-0.0310.0080.125
-0.0120.0270.138
-0.020.0470.177
00.0010.188
-0.0020.0330.143
-0.0250.0250.152
-0.0350.0120.112
-0.0160.0460.155
-0.046-0.0080.105
-0.0370.0210.121
-0.072-0.0310.081
-0.074-0.0280.07
-0.052-0.0050.089
-0.055-0.0020.087
-0.057-0.0140.092
-0.034-0.0150.06
-0.03-0.0170.062
-0.059-0.0070.087
-0.050.0010.1
-0.006-0.0160.093
-0.0080.010.084
ages 0-44
ages 45-59
ages 60+
% Change vs Prior Yr
Sheet1
% change vs prior yearMay 07Jun 07Jul 07Aug 07Sep 07Oct 07Nov 07Dec 07Jan 08Feb 08Mar 08Apr 08May 08Jun 08Jul 08Aug 08Sep 08Oct 08Nov 08Dec 08Jan 09Feb 09Mar 09Apr 09May 09Jun 09Jul 09Aug 09Sep 09Oct 09Nov 09Dec 09Jan 10Feb 10Mar 10Apr 10May 10Jun 10Jul 10Aug 10Sep 10Oct 10Nov 10Dec 10Jan 11Feb 11Mar 11Apr 11
ages 0-44-2.0%-1.6%-4.5%-6.2%-3.3%-2.0%-3.7%-4.1%-2.8%-5.7%-3.0%-7.3%-3.9%-2.3%-2.1%-4.8%-6.5%-3.7%-4.3%-4.9%-7.8%-2.9%-7.8%-5.1%-7.0%-4.0%-4.8%-3.1%-1.2%-2.0%0.0%-0.2%-2.5%-3.5%-1.6%-4.6%-3.7%-7.2%-7.4%-5.2%-5.5%-5.7%-3.4%-3.0%-5.9%-5.0%-0.6%-0.8%
ages 45-591.5%4.6%-1.7%-4.1%-1.4%-0.7%-2.2%-1.9%0.2%-5.5%0.1%-4.1%-3.2%-0.5%0.6%-0.1%-3.7%-1.3%0.6%-1.9%-1.6%3.9%-1.8%2.4%-1.1%0.4%0.8%0.8%2.7%4.7%0.1%3.3%2.5%1.2%4.6%-0.8%2.1%-3.1%-2.8%-0.5%-0.2%-1.4%-1.5%-1.7%-0.7%0.1%-1.6%1.0%
ages 60+5.2%7.1%5.2%1.3%4.3%2.3%0.4%1.7%6.4%2.6%9.8%4.3%3.0%5.1%7.1%7.6%5.0%3.2%6.2%5.2%7.8%14.9%7.7%12.7%11.3%11.6%12.8%12.5%13.8%17.7%18.8%14.3%15.2%11.2%15.5%10.5%12.1%8.1%7.0%8.9%8.7%9.2%6.0%6.2%8.7%10.0%9.3%8.4%
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****No one can say that the P-C industry is earning outlandish profitsNote: these results came in a year with a moderate level of CAT losses**Spending on Financial Services shrinks after a recession. Following the 2001 recession, it kept going down for another two years.**********
