Single Premiums Boosted Ordinary Life Premiums In 2002
By Frederick S. Townsend
Single premium ordinary life sales jumped from $8 billion in 2001 to $20 billion in 2002, enabling total ordinary life premiums to rise 6.4% to a record $102 billion in 2002, for the 139 largest U.S. ordinary life insurers (each writing more than $100 million of direct premiums in 2002).
Data from the Analyzer, an Insurance Research Group (http://irg.informa.com) Web-based information service, shows that new annual premiums rose 3.9% and renewal premiums rose 4.7% for the IRG 139-Company Composite in 2002.
Expense reduction coupled with growth in total annual premiums enabled the ratio of general expenses to annual premiums to fall from 18.4% in 2001 to 16.1% in 2002, the lowest ratio experienced by the life insurance industry in the history of this column (1987-2002).
During the last 16 years, the general expense ratio peaked at 22.5% in 1988, fell to 16.6% in 1994 and 1995, rose to 18.7% in 1999, and set a record low of 16.1% in 2002.
However, net investment yield for the IRG Composite fell from 7.04% in 2001 to 6.56% in 2002, and the loss of 48 basis points in investment income offset the benefits of expense reductions realized in 2002.
Statutory pretax earnings, as a percentage of premium income plus investment income, fell from 7% in 2001 to 4.8% in 2002. This was the lowest pretax margin experienced by the life industry since ratios of 4.6% to 4.7% experienced in the three years 1987-1989.
Aggregate termination ratios for the life industry improved 11 consecutive years, from 12.7% in 1987 (in a period of disintermediation) to 7.7% in 1998, before rising in 1999 and 2000, then improving to 7.1% in 2001 and 7.3% in 2002.
Lapses, as a percent of term insurance in-force, fell to a 10-year low of 9.2% in 2002, the lowest ratio since 8.4% in 1992. This reflects a shift in sales from annual renewable term products with steep price increases (causing lapses) to low-priced 10- and 20-year term policies, which encourage higher persistency.
Surrenders, as a percent of whole life insurance in-force, reached 4.9% in 2002, its second highest ratio in the last 16 years, exceeded only by a 5% ratio in 2000.
Sales results in 2002 were exceeded only by the year 2000, when strong corporate- owned life insurance (COLI) sales helped the IRG Composite to report $16.9 billion of new annual premiums and an average premium of $1,707 per policy issued.
New annual premiums of $15.8 billion in 2002 were $1 billion short of the record set in 2000, and the average premium per policy issued fell for the second consecutive year to $1,303 per policy issued in 2002.
Face amount of life insurance ceded to reinsurers continued to increase for the eighth consecutive year and exceeded half of the total ordinary life insurance in-force for the IRG Composite for the first time in its history, reaching 51.6% in 2002.
Rising reinsurance of mortality risk reflects not only competitive premiums offered by reinsurers but also a desire to minimize geographic exposure and high face amount exposure on individual lives to terrorism risks.
The Industry Table (see page 57) shows 1998-2002 data for the IRG Composite of 139 U.S. life insurers comprising 91% of the industrys total ordinary life premiums.
Table 1 shows the 10 leading companies in new annual premiums. New York Life Insurance & Annuity, Jefferson-Pilot Life and Lincoln National ranked 1-2-3 on the strength of sales increases of 11%, 87% and 17% increases in new annual premiums, respectively.
NYLIAC writes universal life, variable universal life and COLI policies, and writes more than three times the volume of new business written by its parent company, New York Life, which writes traditional ordinary life insurance.
Jefferson-Pilot says it ranked first in the United States in universal life sales in 2002, specializing in the wealth accumulation, wealth preservation and business planning markets.
Lincoln National says it innovated universal life policies with a “no lapse guarantee” in the high end of the affluent market, to achieve its 2002 rankings.
Table 2 shows the 10 companies with the highest ratio of new annual premiums to total annual premiums. The eight companies with ratios exceeding 50% had new annual premiums that exceeded 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.
ING Life & Annuity and Connecticut General reduced their expenses by selling ordinary life blocks to Lincoln National. Lincoln Benefit and Valley Forge Life benefit from low intercompany expense allocations.
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.
CIGNA Worldwide, with an average premium of $6,085 per policy issued in the Hong Kong market, edged out Security Life of Denver for the second straight year, while USAA Life and Savings Bank Life of Massachusetts, with their unique policyholder bases, ranked third and fourth lowest in their termination ratios.
Table 5 shows the 10 companies with the highest average premium per policy issued. Each of the 10 companies exceeded 15 times the industry average, which generates operating efficiencies.
AGL Life Assurance had an average premium per policy issued of $1.9 million in 2002, up from $1.5 million in 2001, far above Lincoln National and Jefferson-Pilot, which exceeded $30,000 of average premium per policy issued in 2002.
AGL writes variable universal life contracts on extremely high-net-worth clients, through private client centers, trust departments and family offices.
Frederick S. Townsend is a founder of the Townsend & Schupp Company, an investment banking and credit research firm. He can be reached at firstname.lastname@example.org.
Reproduced from National Underwriter Edition, June 23, 2003. Copyright 2003 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.