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May 20, 2014 at 10:27 AM
A report in early May from the Financial Stability Oversight Council (FSOC) stated that life insurance industry revenues declined 9.6 percent from the record 2012 level of $645 billion. This in itself should give insurance industry officials enough pause to be concerned about the future independence of the industry.
But there are other concerns. Besides signaling to members of Congress that life insurance company creation of captive insurers is something the FSOC is watching closely, the report also said that “Despite a significant rise in longer-term interest rates this past year, the insurance industry continued to report investment margins that were below historic averages.”
The report added that, “If historically low interest rates persist, insurance companies could face a challenge generating investment returns that are sufficient to meet the cash flow demands of liabilities.”
At the same time, three of the largest industry players, American International Group, MetLife and Prudential Financial, had earnings “misses” early in the month, meaning that either their revenues or profits failed to meet analysts’ expectations. While AIG’s life unit did very well, its property casualty operations suffered because of losses from weather events or fires, an issue that analysts fear will be persistent.
Besides these difficulties, Association for Advanced Life Underwriting officials told attendees at its recent meeting in Washington that changes in tax laws proposed in a discussion draft of the U.S. House Ways and Means Committee could prove “devastating” to the industry, notably in respect to sales of permanent life insurance products used to fund non-qualified deferred compensation plans for business executives.
Moreover, the AALU officials said it is wrong to assume that the proposal is “dead on arrival,” because strange things can happen in Congress. Officials of the National Association of Insurance and Financial Advisors are telling members who contact their representatives that they should carry the same message AALU members delivered in early May — that enactment of the draft proposal would “devastate” the life insurance profession.
