Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Life Health > Life Insurance

IOLI Could Hurt Life Insurers' Future Profits: S&P

Your article was successfully shared with the contacts you provided.

Through the end of 2008, Standard & Poors Inc. projects life insurance sales to grow 2% annually.

The growth would be down from sales growth of 7% in 2006, says S&P, a division of the McGraw-Hill Companies, New York.

One reason sales increases was so high last year was that much of it came from strong sales of investor-owned (also known as stranger-owned) life insurance. IOLI-type life insurance policy ownership could put the future profitability of issuing insurers at risk, because insurance companies underwrite life policies with the assumption that a certain percentage of them will lapse, notes S&P in an outlook for the life insurance industry. As IOLI policies are bought as investments by major financial institutions, they are far less likely to lapse. This means life carriers will pay out claims on a far higher percentage of policies than they had assumed, S&P believes.

To improve true growth, life insurers could continue to seek to sell riskier products that have higher lapse rate assumptions, such as universal life insurance with secondary guarantees, the company predicts.

Low interest rates and tight credit spreads will hurt insurers’ bottom lines in 2008, S&P says. Expected lower payouts from private equity investments will add even more pressure on life insurers’ overall earnings growth, S&P says.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.