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.

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 Ordinary Life Writer Composite Table shows 1999-2003 data for the IC&A Composite of 140 U.S. life insurers comprising 92% of the industrys total ordinary life premiums.

Table 1 shows the 10 leading companies in new annual premiums. Pacific Life, Lincoln National and Jefferson-Pilot Life ranked 1-2-3 on the strength of gains in new annual premiums of plus 30%, plus 12%, and minus 11%, respectively. Pacific Lifes new premiums of $793 million in 2003 were 20% less than New York Life & Annuitys new premiums of $986 million in 2002.

Pacific Lifes distribution of new sales in 2003 was 60% universal life and interest sensitive whole life, 30% variable universal life, and 10% COLI. Lincoln National concentrated on universal life policies with a “no-lapse guarantee” in the high end of the affluent market, and Jefferson-Pilot specialized in universal life sales in the wealth accumulation, wealth preservation and wealth transfer markets.

Table 2 shows the 10 companies with the highest ratio of new annual premiums to total annual premiums. The 6 companies with ratios exceeding 50% had new annual premiums that exceeded their renewal premiums. PHL Variable ranked first in 2003, while American Guardian fell from first and an 81% ratio in 2002 to third and a 67% ratio in 2003.

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.

Lincoln Benefit and Valley Forge Life benefit from low intercompany expense allocations. ING Life & Annuity reduced expenses by selling its ordinary life business to Lincoln National. American Guardian has the lowest expense ratio, 2.1%, among companies retaining their premiums and expenses, achieved by issuing jumbo policies.

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, specializing in the Hong Kong market, edged out reinsurer Security Life of Denver for the 3rd straight year, while American Guardian, with the highest average premium per policy issued, ranked 3rd lowest in its termination ratio.

Table 5 shows the 10 companies with the highest average premium per policy issued. The top 9 companies exceeded 20 times the industry average, which generates operating efficiencies.

American Guardian had an average premium per policy issued of $3.1 million in 2003, up from $1.9 million in 2002 and $1.5 million in 2001. Hartford Life, Security of Denver, AIG and Pacific Life exceeded $36,000 of premium per policy issued in 2003, compared to Lincoln Nationals 2nd place ranking of $35,886 in 2002.

American Guardian writes variable universal life contracts on extremely high-net-worth clients, through private client centers, trust departments and family offices.

While Tables 1-5 present operating data for individual companies, Tables 6-7 present data for corporate groups for consolidated new annual premiums, and for consolidated total direct premiums in 2003 at the request of our readers.

AIG, after acquiring SunAmerica and the American General Group, leads the life industry in new individual life annual premiums, and in total individual life premiums. ING and Aegon rank 2-3 in new annual premiums, while Northwestern Mutual, MetLife, New York Life and Prudential rank 2-5 in total individual life premiums.

Frederick Townsend, of The Townsend Company, can be reached via e-mail at ftownsend@snet.net. Laurie Dallaire is with Insurance Consulting and Analysis, LLC.


Reproduced from National Underwriter Edition, September 16, 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.