Total Ordinary Life Premiums Hit A Record $102 Billion Last Year Renewal Premiums Boosted Total Premiums
By Frederick S. Townsend and Laurie Dallaire
Renewal ordinary life premiums rose 4% in 2003, offsetting declines in both new annual and new single premiums, enabling total ordinary life premiums to rise 0.8% to a record $102 billion in 2003 for the 140 largest U.S. ordinary life insurers (each writing more than $100 million of direct premiums in 2003).
Data from Insurance Consulting & Analysis shows that new annual premiums fell 2% to $15.4 billion, and single premiums fell 7% to $19.1 billion, for the IC&A 140-company Composite last year.
While renewal premiums and total premiums set new industry records, new annual premiums of $15.4 billion in 2003 were only at their 3rd highest level in the last 5 years. The ratio of new to renewal premiums (our vitality ratio) set a 5-year low at 22.7% in 2003.
Growth in operating expenses caused the ratio of general expenses to annual premiums to rise from 16.1% in 2002 to 16.3% in 2003. However, 2003 is still the 2nd lowest ratio experienced by the life insurance industry in the history of this report (1987-2003). This ratio ranged from 22.5% in 1988 to 16.1% in 2002.
Net investment yield for the IC&A Composite fell from 6.57% in 2002 to 6.11% in 2003, but reduced crediting rates on universal life policies and improved persistency enabled statutory profit margins to widen in 2003.
Statutory pretax earnings, as a percentage of premium income plus investment income, rose from 4.8% in 2002 to 5.6% in 2003. Statutory earnings after taxes were 4.5% of total income, the 2nd highest ratio in the last 5 years.
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 to 8.1% in 2000, then improving to a 17-year low of 7% in 2003.
Lapses, as a percent of term insurance in-force, fell to an 11-year low of 8.9% in 2003, 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, have been at their highest level in the last 17 years during 2000-2003. However, this ratio peaked at 5% in 2000 and improved to 4.7% in 2003.
Sales results in 2003 were 8% below the record year 2000, when strong COLI (corporate-owned life insurance) sales helped the IC&A Composite to report $16.7 billion of new annual premiums, and an average premium of $1,701 per policy issued. The average premium per policy issued of $1,392 in 2003 was the 2nd lowest average premium per policy issued in the last 5 years.
Face amount of life insurance ceded to reinsurers continued to increase for the 9th consecutive year and exceeded half of the total ordinary life insurance in-force for the IC&A Composite for the first time in its history, reaching 51.6% and 55.9% in 2002 and 2003, respectively.