As life insurers seek to find more buyers in the United States, sales in foreign markets are booming for some carriers, particularly in Asia as millions continue to transition into the middle class.
Meanwhile, carriers are also courting specific markets within the United States, including Hispanics, gay couples, up-and-coming Gen Yers, and women — particularly those who are the main breadwinner in their household.
The growing middle class in Asia — as well as in the emerging markets of Russia, Turkey and Brazil — are fueling the growth in life insurance sales overseas, according to Trefis, an online investment research site developed by MIT engineers and Wall Street analysts. In Asia, more than 1.2 billion people expected to make the transition into the middle class by 2020, with China presenting one of the greatest opportunities for more life insurance sales.
“Asia is expected to account for over half of the world’s middle class population in the next ten years,” the analysts said in a May 8 research note. “The gross savings as a percentage of GDP is quite high at 41 percent, indicating that most people in Asia can afford insurance products.”
Japan, in particular, is a boom market for U.S. life insurers, Trefis analysts say. Japan is the second biggest life insurance market in the world after the U.S., where more than 20 percent of the world’s premiums are originated. While Japan Post Insurance dominates the market, nearly half of the insurers in the country are foreign-owned operating as subsidiaries, including Prudential Financial, MetLife and MassMutual Life.
Penetration of the Japanese market for all life insurers, as measured by the amount of premiums as a percentage of Japan’s gross domestic product, is nearly 10 percent — compared to a 4 percent penetration in the United States, according to Trefis’ analysts. They expect the Japanese market to grow to $533 billion by 2020.
Japan contributes roughly 50 percent of Prudential’s earnings and revenues from that country should continue to be strong, Jeffrey Schuman, an analyst at Keefe, Bruyette & Woods Inc. in New York City, said in a July 17 research note.
Scot Hoffman, vice president of global communications at Prudential, says the carrier operates insurance companies in Japan, Korea, Taiwan, Mexico, Argentina, Brazil, Italy and Poland, and has insurance operations in India and China through joint ventures.
“We have a leading position in the Japanese market, which is the second largest market in the world, after the U.S.,” Hoffman says. “We continue to seek opportunities for expansion into high-growth markets in targeted countries.”
Prudential’s international insurance segment manufactures and distributes individual life insurance, retirement and related products, including certain health products with fixed benefits, and distributes its products through multiple distribution channels, including two captive agent models, “life planners” and “life consultants,” as well as bank and independent agency third-party distribution channels.
For the second quarter, Prudential’s international division continued to grow, Trefis analysts said in August. Net premiums from international operations were up 2 percent from the prior year, on a constant exchange rate basis. Premiums were up 7 percent in Japan. The number of individual policies outside the U.S. increased from 11.8 million at the end of the second quarter of 2012 to 11.9 million at the end of June, 2013. In Japan, the number of policies has increased from 2.7 million to 2.9 million.
“We expect Prudential to continue to grow its international operations in the coming years,” the analysts wrote. “The company is looking to expand in emerging markets, particularly in Asia and Latin America and has established operations in Japan, Taiwan, Italy, Korea, Brazil, Argentina, Poland and Mexico.”
Likewise, MetLife has operations in some of the fastest growing economies in Asia, including China, Japan, Hong Kong, South Korea and Australia, according to Trefis analysis.
For the second quarter, the carrier reported a 2 percent increase in premiums from Asia, driven by a 3 percent increase in sales, primarily in the three of the biggest economies: Japan, India and China. MetLife has a market share of around 5 percent in the Japanese insurance market, with around 7 million policies in force and over $75 billion in assets.
In China, the company has a market share of 10 percent of the foreign-owned life insurance market. The company also has a 10-year exclusive distribution agreement with the largest nationalized bank in India, Punjab National Bank.
MetLife’s operating income from Latin America fell 7 percent in the second quarter, over the prior year primarily due to higher expenses related to business expansion and lower investment income, the analyst said. Sales in the region remained strong, increasing 32 percent driven by business growth in Mexico. Premiums from Latin America increased 12 percent, year-on-year.
“We expect the company to continue to expand in emerging markets in Latin America and Asia,” the analysts said.
Steven Schwartz, an analyst at Raymond James in Chicago, said in an Aug. 1 research note that MetLife in the second quarter benefited from companywide excess variable investment income and tax items in Europe, the Middle East and Africa (EMEA). Those items were offset by higher than expected catastrophes and a value of business acquired (VOBA) write-off related to the pension business in Poland. However, “underwriting in the U.S. was disappointing, reflecting higher than expected mortality in retail life and adverse morbidity in non-medical health.”
In a July 31 research note, analyst Schuman said that MetLife’s premiums in Latin America grew 12 percent, or 8 percent constant currency, in the second quarter. For Asia and EMEA, premiums increased 9 percent or 11 percent constant currency, excluding an exited business.
Metlife did not return phone calls or emails for comment.
Americans still underinsured
Many insurers are expanding in foreign countries to make up for moderate growth in the U.S.
According to Eastbridge Consulting Group, overall life insurance sales increased slightly more than 11 percent in 2012.
Indeed, while life premiums in the first quarter rose 7 percent over the same time last year, half of U.S. households (58 million) indicated in a 2010 survey that they needed more life insurance coverage, says Todd Silverhart, corporate vice president and director of LIMRA Insurance Research.
According to LIMRA, many U.S. consumers aren’t buying life insurance because they have competing financial priorities: They may think they can’t afford life insurance because they tend to overestimate the actual cost of insurance coverage, they don’t know how much insurance to buy and many simply procrastinate. If the industry could reach such households, total life insurance coverage could be increased by $6.6 trillion dollars, Silverhart says.