New Ordinary Life Premiums Set Records In 2000
By Frederick S. Townsend
Ordinary life sales reached an all-time high in 2000, with new annual premiums rising 11% over 1999, for the 135 largest U.S. ordinary life insurers (each writing more than $100 million of direct premiums in 2000).
Average new premium, per policy issued, rose 15% and set an industry high of $1,840 per policy issued.
Total new and renewal ordinary life premiums, excluding single premiums, increased 7% in 2000. Annual premium growth was impeded by higher termination ratios in 1999 and 2000 (after 14 consecutive years of improvement).
Strong growth in annual premiums enabled the ratio of general expenses to annual premiums to improve from 18.3% in 1999 to 17.6% in 2000, the lowest industry ratio since 17.5% in 1996.
Statutory profit margins in 2000 were depressed by the higher termination ratio and the cost of more new business.
Pretax operating earnings, as a percent of total income, fell to 5.2% in 2000, its lowest ratio since 5% in 1998 and 4.8% in 1989.
After-tax operating earnings, as a percent of total income, fell to 3.8% in 2000. Taxes were 27% of pretax statutory earnings.
The Industry Table (see page 58) shows 1996-2000 data for a composite of 135 U.S. life insurers comprising 91% of the industry’s total ordinary life premiums.
Table 1 shows the 10 leading companies in new annual premiums. Hartford Life ranked first in 1997, 1998 and 2000, on the strength of corporate-owned life insurance sales.
Nationwide Life and Northwestern Mutual, ranked 2nd and 3rd by posting sales increases of 30% and 15%, respectively.
Only Hartford Life (1st), Southland (8th) and Hartford Life & Annuity (10th) were new to the Top 10 list in 2000. Tenth position was a record $398 million of new premiums in 2000, compared to $245 million in 1997.
Table 2 shows the 10 companies with the highest ratio of new annual premiums to total annual premiums. Six companies are new to this list, and the top 8 companies had new premiums exceeding their renewal premiums.
Table 3 shows the 10 companies with the lowest ratio of general insurance expenses to total annual premiums, reflecting efficient expense ratios that they may be able to convert into competitive net costs.
Aetna Life & Annuity and Nationwide Life & Annuity ranked 1-2, respectively, in both 1999 and 2000. Aetna L&A (and Connecticut General) reduced expenses after selling most of their ordinary life lines to Lincoln National.
Hartford Life benefits from large COLI production, Nationwide L&A only allocates 8% of general expenses to ordinary life, and Valley Forge has a low intercompany expense allocation.
Hartford, MML, Jefferson Pilot Financial, and Provident L&A were new to this list in 2000. The tenth lowest ratio fell from 9% in 1997 to 6.7% in 2000.
Table 4 shows the 10 companies with the lowest termination ratios, which may enable them to spread their acquisition costs over a longer period of time and reduce their net costs to policyholders.
Security Life ranked lst in 1997, 1998 and 2000, while Great-West L&A, Sun Life, CN (U.S.) and Pacific Life joined this list in 2000. The 10th place ratio rose from 4% in 1998 to 4.8% in 2000.
After declining 14 consecutive years from 1984 to 1998, the industry termination ratio rose in 1999 and 2000.
Table 5 shows the 10 companies with the highest average premium per policy issued, exceeding 10 times the industry average, which generates operating efficiencies.
MML Bay State, and Nationwide Life & Annuity, are only the 3rd and 4th companies to write $100,000 of new premium per policy issued, in a calendar year.
MML Bay State, Sun Life, CN (U.S.) and Manulife (Amer.) were new to this list in 2000. The 10th place premium per policy issued rose from $10,211 in 1997 to $19,070 in 2000. The industry composite rose from $1,098 in 1996 to $1,840 in 2000.
Information in this article is taken from “Performance Measures of Ordinary Life Insurers,” a Townsend & Schupp study that includes all 135 companies writing more than $100 million of ordinary life premiums in 2000.
Frederick Townsend, a founder of the Townsend & Schupp Company, is an investment banker in Hartford, Conn.
Reproduced from National Underwriter Life & Health/Financial Services Edition, November 12, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.