The U.S. life insurance industry has returned in the aggregate less than its cost of equity since 1985, according to a new report.
McKinsey & Company, New York, discloses this finding in “The Life Journey: Winning in a Risk-Driven World.” The report addresses risk skills that affect company performance, industry opportunities and challenges and strategic implications of the current market environment for life insurers.
The report reveals the life insurance industry’s return less the cost of capital barely hovered in positive territory during the periods of 1985-1993 (1.6 percent) and 1994-2002 (0.6 percent). Since then, the industry has yielded an average negative return (-2.5 percent).
In 2011 (the most recent year for which data is available), the industry’s return minus the cost of the capital was -6 percent, the worst year recorded by McKinsey since the downturn of 2008, when the net return on equity was -30.6 percent. In the intervening years, the industry posted negative net returns of -3.0 percent (2009) and -1.9 percent (2010).