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October 28, 2007 at 04:00 PM
The best of times await nimble insurers, said Donna Kinnaird, president of Swiss Re Life and Health America Inc., at KPMG LLP’s 19th annual insurance industry conference here last month.
This is after a period of lackluster financial performance compared with other industries, she told 270 insurance executives attending the conference.
The reason is a confluence of factors ranging from increased longevity to less reliance by consumers in the future on traditional retirement sources such as Social Security and defined benefit plans, she said.
However, in order to take advantage of this, according to Kinnaird, companies will need to optimize distribution, products, risk and capital management capabilities.
To date, she added, insurers have not performed as well as other segments of the financial services industry. For instance, mutual funds’ share of U.S. retirement assets grew to 25% in 2006 up from 5% in 1990, according to data culled from the Investment Company Institute and the Federal Reserve Flow of Funds. But, during that same period, life insurers’ share of those U.S. retirement assets edged slightly downward to 14% in 2006 compared with 15% in 1990.
During the same period, Kinnaird noted, the industry’s return on equity has not kept up with other financial services businesses. Information from the Insurance Information Institute indicates the average ROE for life insurers between 1990 and 2004 was 11.9% compared with 12.7% for all U.S. industries, 14.9% for commercial banks and 17.4% for diversified financial services firms.
“If you are not managing volatility and assets are not being brought in, then it is no surprise that life insurance companies are not keeping up,” she said.
