State of the Life Insurance Industry

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State of the Life Insurance Industry

• Jeff Holzbauer - ASA, MAAA

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What is an Actuary?
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What is an Actuary?

• An actuary is someone who wanted to be an
  accountant, but didnt have the personality for
  it.

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Q What is the difference between an introverted
actuary and an extroverted actuary?
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A An introverted actuary stares at his own feet
during a conversation, while an extroverted one
stares at the other persons feet.
Q Introverted vs Extroverted Actuary?
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Todays Discussion

• 1. Market Outlook
• 2. Life Insurance Trends/Product Features
• 3. Annuity Trends/Product Features
• 4. Hot Topics

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Market Outlook

• Positive Trends
• improved economic climate
• growth in invested assets
• reduced expenses
• exit from noncore or unprofitable lines
• less defaults
• more fees from variable business from higher
  account values

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Market Outlook

• Negative Trends
• balance shareholder value and security
• pursuit of scale and need for long term value
• movement to riskier and more complicated products
• non-insurance competitors (banks, telemarketing,
  internet)
• Overall Outlook Stable

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Market Outlook

• Distribution Channels
• affiliated agents shrinking
• nontraditional avenues (internet) growing
• why are of agents shrinking?

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Market Outlook

• Qualities of a Surviving Company
• Strong brand name
• Broad varied distribution channel
• Product diversity
• Top quality service
• Advanced technology
• Pricing power
• Economies of Scale (Hot Topic)

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U.S. Individual Life Sales Trends
Policies sold (millions)
Annualized premium (bil)
Preliminary estimates
Source LIMRAs Individual Life Sales Survey and
LIMRA Estimates
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U.S. Individual LifeProduct Market Share
Annualized Premium
Source LIMRAs Individual Life Sales Survey and
LIMRA Estimates
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Term Life Insurance

• Increase in sales
• Concerns
• Increase in reserves
• Limited reinsurance
• 2001 CSO (Hot Topic)
• Return of Premium Term (Hot Topic)

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Whole Life

• High premiums with no flexibility
• Decrease in Dividends
• 2001 CSO

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Universal Life

• Increase in sales
• Very flexible
• Secondary Guarantees
• Shadow Accounts
• Concern over profitability level of reserves
• 2001 CSO

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Variable Universal Life

• Sales had been tied to market movements
• Sales peaked in 2000 before decline
• Ready to rebound?

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Variable Life Market Share vs. Stock Market
SP 500
Variable share of new premium
SP 500 Index
VULVL share
Sources LIMRAs US Individual Life Insurance
Sales, LIMRA estimates, Economy.com
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Life Insurance Ownership
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Life Insurance OwnershipAmount of Life Insurance
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Life Insurance OwnershipRatio of Coverage to HH
Income
Median 2.5x
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Perceived Adequacy of Life Insurance Coverage
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Life Insurance OwnershipRatio of Coverage to HH
Income
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Annuities

• 2 kinds Deferred and Immediate
• Fixed or Variable
• Benefit of deferring taxes

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Annuity Sales Trends
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Variable Annuities

• Increased sales due to market upswing
• Customers worried about no guarantees
• Guaranteed minimum death benefit
• Guaranteed living benefits (Hot Topic)
• Accumulation
• Withdrawal
• Income
• Risk Management Hedging programs necessary

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Fixed Annuities Deferred

• Equity Indexed Annuities (Hot Topic)
• Other Fixed Deferred Annuities
• Spread Compression
• New Non-Forfeiture Law

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Fixed Annuities - Immediate

• Primed for growth
• Mitigate post retirement uncertainties
• New tax proposals

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Hot Topics

• 2001 CSO
• Scale
• C3P2 Stochastic Modeling
• ROP Term
• Living Benefits
• Diversification
• Customization
• Grid Computing

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Thanks!

• Jeff Holzbauer
• 735-2170