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Expense, Lapse Ratios Remain Steady

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Life insurers seemed to hold their own in 2005 when it came to toeing the line on insurance operating expenses and lapses.

Insurance expenses inched up very slightly and lapses declined slightly even as premium and annuity considerations grew, according to data taken from the National Association of Insurance Commissioners annual statement database via National Underwriter Insurance Data Services/Highline Data.

For the top 50, premium and annuity considerations increased 5% to $376.5 billion in 2005 compared with $358.3 billion in 2004.

Insurance expenses as a percentage of average in-force, ordinary business, however, remained almost unchanged at 12.6% in 2005 compared with 12.5% in 2004.

In general, insurance expenses include commission expenses and general expenses divided by premium and annuity considerations. The growth in premium and annuity considerations may, in part, explain why the expense percent remained relatively constant.

Lapses as a percentage of ordinary business dropped to 5.9% in 2005 compared with 6.8% in 2004, the data indicated.

The lapse percentage is calculated by adding surrenders and lapses for ordinary insurance and dividing it by the average of in-force business for the year.

Overall in the top 50, the range in changes in the insurance expense percentage went from a decline of 92.75% for Security Life of Denver Insurance Company to an increase in the expense percentage of 288.7% for MetLife Investors USA Insurance Company.

Security Life’s insurance expense percentage declined to 1.4% in 2005 compared with 19.3% in 2004. Premium and annuity considerations at the same time grew 182% to $3.5 billion in 2005 from $1.3 billion in 2004.

At MetLife Investors USA, premium and annuity considerations also grew to $4.4 billion in 2005, 414% over 2004′s $863 million.


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