Life insurers will be back in the black at the end of the year, reaping an estimated $16 billion in profits, according to new research from Conning Research and Consulting.
Life insurers will be back in the black at the end of the year, reaping an estimated $16 billion in profits, according to new research from Conning Research and Consulting.
That estimated profits reflect projected realized capital losses of $20 billion during the year, according to Conning’s report, “Life-Annuity Forecast and Analysis 2009-2011.”
Of course, those profits are hardly impressive when compared with those of the years leading up to the crisis: Combined, life insurers earned $34 billion a year, on average, between 2004 and 2007, according to the report.
Annuities took a hard hit during the economic crisis last year. Rising reserves for minimum guaranteed benefits, along with increasing consumer demand for fixed annuities, led to a $22 billion statutory net operating loss last year. However, some of those reserves have been released, helping to create what is expected to be an $11 billion operating gain in 2009. Other drivers behind that gain include fewer surrenders and rising net premiums.
Conning predicts that in 2010 and 2011 net operating gains for individual annuities will stay below 2007 levels. The recovery isn’t an immediate return to normalcy, as it is yet to be determined whether new clients will be excited about newly less-risky annuity products.
Individual net life insurance premiums are expected to fall to $98 billion at the end of the year, reflecting a decline of 14% from the previous year, according to Conning.
But by 2011, premiums will bounce back to $109 billion. However, Conning is also assuming that the economy will stabilize this year and improve for the next two years. It expects obstacles, including high near-term policy lapse rates and customers who are trying to juggle their finances amid tough job markets, to beset the industry’s path to recovery.
For all lines of business, Conning expects net premiums for life carriers to fall by 1.3% in 2009, down from $631.3 billion in 2008, due to the recession. Demand for products due to estate planning and a new focus on savings will help premiums climb in 2010 and 2011, albeit at a slower pace than in the past, the report said.
