Global insurance markets outlook for 2012
US life insurance outlook
Analytical and predictive modeling techniques continue to improve, creating opportunities for increased sales, improved efficiency and expanded capabilities.
Pressure is on life insurer ratings and capital levels
Life insurers in the United States face a conundrum as they head into 2012—managing both capital and risk in an economically and politically uncertain year, while continuing to lay the groundwork for future growth. The uncertain economic climate, compounded by ongoing concerns over US debt, continues to put pressure on life insurer ratings and capital levels.
Factors intensifying this pressure include:
- Low interest rates raising concerns over spread compression
- Volatile equity markets increasing hedging costs and reserve requirements
- Impacts of the unfolding euro zone financial crisis — particularly for multinationals
- Insistent investors wanting higher returns
- The changing regulatory environment
With these factors as a backdrop, management will need to maintain current credit ratings and capital levels in 2012, while simultaneously trying to improve earnings. However, the latter may prove potentially difficult through organic growth strategies.
Continued unemployment creates competition for consumers' dwindling financial resources, which may affect new life insurance sales. Additionally, retirement account assets are still recovering from losses suffered in 2008, delaying further development of the retirement income market.
Although variable annuity sales increased in the first half of 2011, the return of volatility in the second half has darkened the outlook for 2012. Potential regulatory changes also may challenge some insurers if capital requirements and distribution models are disrupted.
Consequently, US life insurers may need to improve earnings through such nonorganic means as an opportunistic acquisition, while building the foundation for organic growth after 2012.
Five broad themes are emerging to command management's focus in 2012:
|1||Manage the company for the current low-interest-rate environment|
|2||Prepare for the impact of accounting and regulatory convergence|
|3||Invest in customer analytic tools to drive efficiency and improve risk management|
|4||Monitor developments in life insurance taxation|
|5||Embrace the internet|