State of the Life Insurance Industry

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State of the Life Insurance Industry

• Shyam Lakshmin
• February 14, 2007

2
How many actuaries does it take to screw in a
light bulb?
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How many actuaries does it take to screw in a
light bulb?

• (Guarded) Optimism
• How many did it take last year?
• How many do you want it to take?
• Have any of our competitors changed bulbs yet?

4
How many actuaries does it take to screw in a
light bulb?

• Pessimism
• 5 One to screw it in, and four more to estimate
  the length of its life before being screwed in.
• I dont know. That wasnt on any exam.

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How many actuaries does it take to screw in a
light bulb?

• Nihilism
• 0 After credibility weighting we have
  indications that it is still lit.
• 0 They prefer to leave us in the dark.
• 0 The Department of Insurance is not allowing
  any modifications at this time.

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Todays Discussion

• Market Outlook
• Life Insurance Trends/Product Features
• Annuity Trends/Product Features
• Legislation
• Hot Topics

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Market Outlook

• Strengths
• Improved economic climate
• Adequate capital
• Reduced expenses
• Exit from noncore or unprofitable lines
• Business diversity
• More fees from variable business from higher
  account values

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Market Outlook

• Weaknesses
• Mature markets
• 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
• Reserve changes
• Reinsurance market settling down
• 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
• C3P2

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Fixed Annuities Deferred

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

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Fixed Annuities - Immediate

• Struggling due to low interest rates
• Primed for growth
• Mitigate post retirement uncertainties
• New tax proposals

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Recent Legislation

• Suitability
• Long Term Care and Annuities
• Premium Based Reserves
• Interstate Compact

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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!

• Shyam Lakshmin
• State Farm Life/Health Actuarial
• 766-3303