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Conning & Co Study: Life Insurers to Thrive in the Long Term

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Posted on 24 Jun 2009

Life insurance companies are struggling to emerge from the shadows of 2008's losses, but in the long run they will prosper, according to a study from Conning & Co.

The Hartford, Conn.-based research firm estimated that the industry had a statutory net loss of $51 billion. Although realized and unrealized capital losses will continue to hobble carriers at least through this year, Conning predicted growth for the industry between 2009 and 2011, stimulated by estate planning and consumers’ need for stable investment alternatives.

Estimated surplus levels dipped to about $272.7 billion for the industry at the end of last year, down from $314.1 billion in 2007. However, surplus levels are expected to rise to $336.9 billion by the end of 2011, Conning said.

Statutory-net-operating losses for the industry hit $1.1 billion last year, but will return to the black for 2009, for a gain of $21.6 billion, the firm predicted.

Conning also forecasted that realized capital losses this year could continue to dog carriers’ profits, but an overall net loss for 2009 is unlikely.

Net premiums on annuities will continue to grow over the course of the next few years, with individual-annuity net premiums climbing to $225 billion in 2011, from $203 billion last year. Nevertheless, weakened carriers may exit the individual-annuity space, search for more capital or merge with other insurers.

Because clients’ preference for certain products are expected to change as they become more aware of the financial risks of variable annuities, the variable annuity won’t dominate the individual annuity pack as it once did.

Individual life net premiums will slump to $109 billion this year, a 4% decline but will rise to $114 billion in 2011, Conning predicted. But that forecasted total assumes that the economy becomes stable this year and improves in 2010 and 2011.

Policy surrenders and lapses will probably be high in the near term, Conning noted. Also, underwriting older individuals will become costly and baby boomers will face pressure, so carriers may seek premium dollars from younger buyers in order to be profitable, the firm said.


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