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State of the U.S. Life Insurance Industry Robert Gomez March 1, 2012.

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Presentation on theme: "State of the U.S. Life Insurance Industry Robert Gomez March 1, 2012."— Presentation transcript:

1 State of the U.S. Life Insurance Industry Robert Gomez March 1, 2012

2 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?

3 Answer The first life insurance company in the U.S. Established 1759

4 Todays Discussion 1.Industry Outlook 2.Life Insurance Trends 3.Annuity Market 4.On the Horizon

5 Industry Outlook Strengths – Capitalization restored to pre-crisis levels – Liquidity position significantly improved – Credit losses on corporate bond portfolios declining – Stronger enterprise risk management

6 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)

7 Industry Outlook Qualities of Top Insurers – Strong brand name – Broad & varied distribution channels – Product diversity – Top quality service – Advanced technology – Pricing power

8 Question Which life insurer held the most assets at year-end 2010?

9 Answer Met Life How much? $290 billion

10 Market Outlook Uncertainties – Investments – Interest Rates – Distribution

11 U.S. Individual Life Sales Trends

12 Term Life Insurance Most popular product From insurers perspective: – Competitive market – Little flexibility in premium changes – Sensitive to mortality

13 Whole Life High level premiums, not flexible for policyholder From insurers perspective: – Mutual company uses dividends to reflect experience – Profits affected by mortality, interest, expenses, and persistency Resurgence in popularity

14 Universal Life Flexible premiums Unbundled product Secondary Guarantees – Specified Premium – Shadow Accounts – Concern over profitability & level of reserves

15 Variable Universal Life Sales followed stock market Peaked in 2000 Equity-Indexed UL

16 Variable Market Share

17 U.S. Individual Life Annualized Premium Market Share Source: LIMRAs U.S. Individual Life Insurance Sales Trends, 1975-2010

18 US Life Insurance Ownership (Percent of Households) Source: LIMRA Household Trends in U.S. Life Insurance Ownership

19 Life Insurance Ownership Amount of Life Insurance

20 Annuity Market Variable or Fixed Deferred and Immediate Tax-qualified and Non Tax-Qualified Longevity

21 Annuity Sales ($billion)

22 Annuity Sales % Change Source: LIMRA U.S. Individual Annuity Yearbook & U.S. Individual Annuities

23 Variable Annuities Sales following stock market trends Guarantees on account value – Guaranteed minimum death benefit – Guaranteed living benefits Accumulation Withdrawal Income From insurers perspective: – Risk management and hedging – Asymmetrical risk – Revenues derived from % assets When stocks decline, so do revenues collected

24 Fixed Annuities – Deferred Guaranteed interest rates Book Value Surrenders vs. Market Value Adjustments Equity Indexed – Growing market share

25 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

26 Question Which state was the first to forbid gender discrimination in insurance rate-setting?

27 Answer Montana, in 1985

28 On the Horizon Regulation Principle Based Approach Baby boomers – LTC combination products – Longevity insurance Pandemic Scenario Life Settlements Genetic Testing

29 Robert Gomez ASA, MAAA State Farm Life/Health Actuarial

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