Los Angeles, CA (PRWEB) September 07, 2012
According to the Federal Reserve, the Life Insurance and Annuities industry is one of the largest sources of investment capital in the United States. “As a major source of capital,” says IBISWorld analyst Sophia Snyder, “businesses, governments and organizations rely on life insurers to expand operations or finance transactions.” At the same time, life insurers' primary responsibility is to their policyholders; they offer services and products related to wealth preservation, retirement savings and estate planning.
Since the 1930s, the industry has been the largest source of bond financing in the United States, according to the American Council of Life Insurers. According to Snyder, “The magnitude of invested assets highlights the industry's exposure to the financial market sector.” As a result, revenue has been decimated by the subprime mortgage crisis and financial market collapse. Revenue declined at an average annual rate of 2.5% to $904.4 billion in the five years to 2012. The decline in revenue is largely attributed to investment losses, but a drop in income from premiums also hurt the industry. As unemployment rose and disposable income diminished, demand for individual policy coverage weakened. Similarly, the rise in unemployment diminished sales of group coverage. Investment income continued to fall due to the industry's exposure to real estate investments, mortgages and other debt-related securities. As a result, revenue fell dramatically in 2009. In 2011, however, the declines started to reverse, and revenue in 2012 is expected to increase 1.4%. Further, the number of employees is starting to creep upward.
The Life Insurance and Annuities industry has low market concentration, as the top four life insurers in the United States account for about one-tenth of industry revenue in 2012. However, this statistic is somewhat misleading, as annuity considerations are not accounted for as revenue under GAAP accounting standards. As a result, more than half of industry premiums are not included in the industry's concentration analysis. At the same time, it is important to highlight these companies, as annuities are the largest source of industry revenue, disregarding GAAP standards. Over the five years to 2017, concentration is expected to increase as larger firms acquire smaller operators in an attempt to increase market share and expand services. The four main types of life insurers in the United States include stock-owned entities, mutual companies, fraternal organizations and federal agencies. Stock life insurers issue stock and are owned by their stockholders, while mutual companies are legally owned by their policyholders and consequently do not issue stock. Stock life insurance companies can be owned by a variety of investors, including individual investors, institutions, corporations, other life insurance companies and even mutual firms. As a result, these entities tend to be less risk-averse in comparison to mutual companies, as the diverse ownership base is generally more concerned with profit margin and stock appreciation than financial stability.
In the five years to 2017, industry revenue is forecast to grow at a healthy rate as the industry benefits from higher interest rate returns on bonds and other debt-market securities. Beyond this one-year gain, industry growth will remain restrained over the majority of the next five years, hampered by persistent unemployment. Investment income is also expected to be modest compared with pre-2008 levels as firms attempt to lower financial risks and improve stability.
For more information, visit IBISWorld’s Life Insurance & Annuities in the US industry report page.
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IBISWorld industry Report Key Topics
Operators within this industry are primarily engaged in accepting liability under annuities and life, disability income and accidental death and dismemberment insurance policies. Enterprises within this industry include fraternal organizations, privately held insurers, publicly traded insurers and mutual insurance companies.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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