Higher interest rate returns on bonds and other debt-market securities will support growth.
New York, NY (PRWEB) January 19, 2015
According to the Federal Reserve and the American Council of Life Insurers, the Life Insurance and Annuities industry is one of the largest sources of investment capital in the United States. Holding over 18.0% of all US corporate bonds, industry operators are the largest source of bond financing for domestic businesses. “As a result, a myriad of companies rely on life insurers to expand operations or finance transactions,” accoriding to IBISWorld Industry Analyst Stephen Hoopes. However, the primary obligation of life insurers is to their policyholders; life insurance policies and annuities products are used by consumers for wealth preservation, estate planning and retirement savings.
The magnitude of the industry's invested assets highlights its exposure to the financial sector. While an estimated 71.2% of the industry's revenue represents annuity considerations and life insurance premiums, the remaining revenue is predominantly generated by investment income. Consequently, the subprime mortgage crisis and financial market collapse decimated revenue for the industry. With general improvements in equity markets and downstream demand since 2010, revenue for the industry is anticipated to increase at an annualized rate of 1.2% over the five years to 2015 to $811.4 billion; this growth includes a 2.1% increase anticipated in 2015.
Yet, not all trends have been positive over the five-year period. More specifically, declining group annuity sales caused the industry's revenue to fall in 2013, as industry operators opted to reduce or eliminate variable annuity offerings. “For example, MetLife and Prudential reduced sales of these contracts, with Prudential indicating that reinsurance deals have not been as compelling as other strategies for managing risks from guarantees,” says Hoopes. Simultaneously, industry operators are facing increased regulatory focus concerning their “shadow reinsurance” practices, or the repackaging and shift of policies to reinsurers owned by the same group.
Over the five years to 2020, industry revenue is forecast to grow. Increasing household affluence, an aging population and households taking on a greater role in retirement planning will support premium growth. Stronger financial markets and higher interest rates over the second half of the five-year period are anticipated to boost investment income. In addition, industry operators are expected to continue to consolidate in order to operate more efficiently and boost profit margins.
For more information, visit IBISWorld’s Life Insurance and 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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