Golden Age For Life Insurers Is Just Around The Bend: Analyst
The life insurance industry is poised for a “golden age” that will eclipse its recent problems, an insurance analyst told attendees at a meeting of the New York Society of Security Analysts.
A major reason for this prediction is that “baby boomers are moving toward the industry,” according to Steven Schwartz, a senior vice president-equity research, with Raymond James & Associates, Chicago.
In spite of recent challenges that include new accounting requirements, losses associated with guarantees in variable products and unfavorable tax treatment of insurance products, the needs of an aging population offer insurers a tremendous opportunity, Schwartz said.
But that opportunity will be for a smaller number of insurers as consolidation continues to whittle away at the number of life insurers in the United States, he added.
Among things the industry needs to improve, says Schwartz, are its tax treatment in Washington and the pricing of products such as long term care insurance.
President Bush did not directly attack the insurance industry, he says, but rather, made other investment options more appealing by lowering their tax rates.
Even so, he called the opportunity for insurers starting in 2009 and running through 2050, a “golden age of life insurance.”
Over the next 10 years, baby boomers, representing $4.4 trillion in assets–some 61% of the current entire mutual fund market–will reach retirement age, he noted. There will be a need for life income products, immediate annuities and long term care products, he continued.
Schwartz said there is a major opportunity for insurers in the LTC insurance market once they get their pricing and assumptions right. Some insurers have assumed higher lapses than currently are being experienced as consumers hold onto their policies, he explained.
LTC products are complex and “maybe the government needs to come in like in Medicare and create 10 policies that everyone understands,” he added.
Mark Thresher, the president and chief operating officer-elect at Nationwide Financial, Columbus, Ohio, also discussed opportunities and challenges.
“We still see the life and retirement savings business as a significant growth business,” he said. Both accumulation and payout products will be opportunities, he told attendees.
And the CPA distribution channel is one that Thresher identified as an opportunity going forward.
Thresher also noted the “threat” to variable annuities of a reduction in the capital gains tax but added that it is important for insurers to cite the “advantages and protections that dont come out of a mutual fund.”
Another challenge facing the industry and one Nationwide is “getting its hands around,” is managing guarantees in variable products, he said.
On industry consolidation, Thresher said a good transaction should complement an existing business and not just provide scale. However, he said Nationwide would look at 401(k) business where scale is important.
Reproduced from National Underwriter Life & Health/Financial Services Edition, January 30, 2004. Copyright 2004 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.