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November 09, 2004 at 07:00 PM
Life insurers are looking more like asset managers, and asset managers are facing structural changes.[@@]
Executives from Ernst & Young L.L.P., New York, gave that assessment today during the firm’s annual review of the state of the financial services industry.
The life insurance industry is shedding mortality risk and relying instead on fees and margins from assets under management, according to Peter Porrino, Americas director of Ernst & Young’s financial services practice.
While assets under management have contributed to strong performance, cost control has been a real driver of recent returns, Porrino said. General expenses as a percentage of total assets dropped 31 basis points to 1.11% in 2003 compared with 1.42% in 1992, Porrino said.
The improvement does not suggest that efforts to control distribution expenses could mean the end of the career agent, Porrino said. Rather, he predicted, there will be a “slow attrition” of career agents.
Acquisitions also will help improve earnings and expand distribution, and activity should pick up in 2005, Porrino said.
Porrino speculated that European insurers could return to the U.S. acquisition market and that some of the 2005 deals could could involves prices in the range of $10 billion to $20 billion.
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