United States Insurance Report Q4 2011
Includes 3 FREE quarterly updates
At the time of writing, it is difficult not to be optimistic about the current situation and short-term prospects of the US insurance sector. Compared to its peers in other countries, it stands out for the quality of regulation, the number of players who are able to achieve world-standard economies of scale, openness to competition from foreign insurers (or at least those with the absolute size and management resources to compete against a formidable number and variety of local titans), the responsiveness of managements to commercial conditions and the innovation in product development.
Virtually all of the major life insurance companies – and the biggest ones in particular –reported double-digit growth in annuity sales in Q211 compared to Q210. Life companies’ profits are also rising. Many companies have undertaken stock buy-backs. If there is a cloud on the horizon, it is that the future of the regulatory environment is unclear following the passage of the Dodd-Frank Act.
Nevertheless, it may well be that additional costs are not borne by shareholders (in the case of listed companies) or policyholders (in the case of the mutuals, which there are less of but they are still very important).
In the previous report, our assessment of the prospects for the life segment was fairly bleak. In particular, we thought the combination of low bond yields, negative real interest rates, an unusually fickle stock market, a real estate slump and weak labour market would curtail sales of annuities and other life insurance products. In fact, as we suggest above, sales have boomed, especially for larger players with strong brands and distribution networks. New York Life said it was the only life company to achieve a double-digit market share. Other majors such as MetLife and Prudential Financial have also achieved very strong sales growth. In this report, our interpretation would be that annuities and life insurance products have actually benefited from the difficult conditions prevailing in most other asset classes. Although the US economy has remained challenging and the labour market is still fragile, it is clear that the absolute flow of money that can be saved on behalf of households is enormous. The share buybacks that have been announced indicate that life companies feel they can take some of the capital that they deployed to meet long-term liabilities ‘off the table’.
For non-life companies, the situation is more mixed but very far from disastrous. Listed health companies have unsurprisingly reported that healthcare costs continued to rise in Q211. However, they are generally countering the problem with tighter control of other expenses and/or increasing the number of customers on their books. For property and casualty insurers, the main short-term challenge was the enormous catastrophe losses in H111 as a result of tornadoes and other disasters in the US.
Some companies were also exposed to the costs associated with the earthquake and tsunami in Japan in March 2011, the earthquakes in New Zealand, extreme weather events in Australia and other catastrophes abroad. However, most companies stressed that claim and combined ratios – excluding the impact of catastrophes – have been falling. Many also indicated that they have been able to increase prices.
There have been very few comments that suggest that the general softness of economic activity in the US over the last year or so has had an adverse impact on commercial lines. The implication is that corporate clients that have survived the challenges of the last few years are easily able to continue paying for insurance. Above all, there appears to be no shortage of capital. Many of the property and casualty companies, like some of the life insurers, have also been undertaking stock buybacks.
At the time of writing, it is difficult not to be optimistic about the current situation and short-term prospects of the US insurance sector. Compared to its peers in other countries, it stands out for the quality of regulation, the number of players who are able to achieve world-standard economies of scale, openness to competition from foreign insurers (or at least those with the absolute size and management resources to compete against a formidable number and variety of local titans), the responsiveness of managements to commercial conditions and the innovation in product development.
Virtually all of the major life insurance companies – and the biggest ones in particular –reported double-digit growth in annuity sales in Q211 compared to Q210. Life companies’ profits are also rising. Many companies have undertaken stock buy-backs. If there is a cloud on the horizon, it is that the future of the regulatory environment is unclear following the passage of the Dodd-Frank Act.
Nevertheless, it may well be that additional costs are not borne by shareholders (in the case of listed companies) or policyholders (in the case of the mutuals, which there are less of but they are still very important).
In the previous report, our assessment of the prospects for the life segment was fairly bleak. In particular, we thought the combination of low bond yields, negative real interest rates, an unusually fickle stock market, a real estate slump and weak labour market would curtail sales of annuities and other life insurance products. In fact, as we suggest above, sales have boomed, especially for larger players with strong brands and distribution networks. New York Life said it was the only life company to achieve a double-digit market share. Other majors such as MetLife and Prudential Financial have also achieved very strong sales growth. In this report, our interpretation would be that annuities and life insurance products have actually benefited from the difficult conditions prevailing in most other asset classes. Although the US economy has remained challenging and the labour market is still fragile, it is clear that the absolute flow of money that can be saved on behalf of households is enormous. The share buybacks that have been announced indicate that life companies feel they can take some of the capital that they deployed to meet long-term liabilities ‘off the table’.
For non-life companies, the situation is more mixed but very far from disastrous. Listed health companies have unsurprisingly reported that healthcare costs continued to rise in Q211. However, they are generally countering the problem with tighter control of other expenses and/or increasing the number of customers on their books. For property and casualty insurers, the main short-term challenge was the enormous catastrophe losses in H111 as a result of tornadoes and other disasters in the US.
Some companies were also exposed to the costs associated with the earthquake and tsunami in Japan in March 2011, the earthquakes in New Zealand, extreme weather events in Australia and other catastrophes abroad. However, most companies stressed that claim and combined ratios – excluding the impact of catastrophes – have been falling. Many also indicated that they have been able to increase prices.
There have been very few comments that suggest that the general softness of economic activity in the US over the last year or so has had an adverse impact on commercial lines. The implication is that corporate clients that have survived the challenges of the last few years are easily able to continue paying for insurance. Above all, there appears to be no shortage of capital. Many of the property and casualty companies, like some of the life insurers, have also been undertaking stock buybacks.
Contents
CONTENTSExecutive Summary
Table: Total Premiums 2008-2015
Key Insights On The US Insurance Sector
SWOT Analysis
US Insurance Industry SWOT
US Political SWOT
US Economic SWOT
US Business Environment SWOT
Life Sector
Developed States Life Sector Overview
Table: Developed States Life Premiums, 2008-2015 (US$mn)
US Life Sector Update
Table: Breakdown Of Life/Health Insurance By Major Lines – Direct Written Premiums, 2008-2009 (US$mn)
Life Industry Forecast Scenario
Table: Life Premiums, 2008-2015
Growth Drivers And Risk Management Projections
Population
Table: Insurance Sector Key Drivers – Demographics, 2008-2015
Non-Life Sector
Developed States Non-Life Sector Overview
Table: Developed States Non-Life Premiums, 2008-2015 (US$mn)
US Non-Life Sector Update
Table: Breakdown Of Property/Casualty Insurance By Lines, 2009 (US$mn)
Non-Life Industry Forecast Scenario
Table: Non-Life Premiums, 2008-2015
Growth Drivers And Risk Management Projections
Macroeconomic Outlook
Table: US Economic Activity, 2007-2015
Political Stability Outlook
Table: Developed States Security Risk Ratings
Healthcare
Epidemiology
Table: Insurance Sector Key Drivers – Disability-Adjusted Life Years, 2008-2015
Motor
Table: Insurance Sector Key Drivers – Autos, 2008-2015
Tourism
Table: Insurance Sector Key Drivers – Tourism, 2008-2015
Insurance Risk/Reward Ratings
Table: The US’ Insurance Risk/Reward Ratings
Table: Developed States Insurance Risk/Reward Ratings
Competitive Landscape
Competitive Landscape Analysis
Major Players In The US Insurance Sector
Life Segment
Table: Top 10 Life/Health Companies, 2009
Table: Top 10 Health Insurance Companies, 2009
Table: Top 10 Companies By Direct Written Premiums Market Share, 2009 (%)
Non-Life Segment
Table: Top 10 Non-Life (Property/Casualty) Companies, 2009
Table: Top 10 Reinsurers Of Property/Casualty Risks – US Business, 2009
Table: Top 10 Providers Of Passenger Auto Insurance
Company Profiles
Local Company Profiles
Aetna Group
Aflac
American Family Insurance Group
Allstate
Berkshire Hathaway
The Hartford
John Hancock
Liberty Mutual
Lincoln Financial Group
MassMutual
Nationwide
New York Life
Progressive
United Health Group
WellPoint
Regional Company Profiles
ACE Group
AEGON
Allianz
AXA
Chartis/SunAmerica
Chubb Group
CNA Insurance Group
ING
MetLife
Principal Financial
Prudential Financial
State Farm
Travelers Group
USAA Group
Zurich America
BMI Methodology
Insurance Risk/Reward Ratings
Table: Insurance Risk/Reward Indicators And Rationale
Table: Weighting Of Indicators Skip to top