2019: Life-Annuity Industry Expenses - Treading Water
The Conning study, “Life-Annuity Industry Expenses: Treading Water” explores life insurance and annuity expenses, analyzes how much “economies of scale” and product mix influence a company’s efficiency, and whether low expense ratios lead to higher profitability in the current economic environment. By choosing appropriate peer groups, by size or business focus, insurers can evaluate their own expense trends against the industry.
1. Introduction
2. Executive Summary
3. Total Expenses for the Life-Annuity Industry
- Key Findings
- Life-Annuity Expenses: A Lever for Reducing Costs
- Expenses and Financial Results for the Life-Annuity Industry
- Overall Industry Life Expenses
- Expense Trends by Size
- Expense Trends by Ownership Structure
- Low Expense Companies
4. Selling Expenses
- Key Findings
- Total Selling Expense Trends
- Selling Expense Subcategories
- Correlation Between Selling Expenses and Premium Growth
- Summary
5. Non-Selling Expenses
- Key Findings
- Total Non-Selling Expense Trends
- People Expenses Category
- Overhead Expenses Category
- IT Expenses Category
- Investment Expenses Category
- Non-Selling Expenses for Low Expense Groups and Remaining Industry
6. Large Insurers
- Overall Life Expenses for Large Insurers
- Selling Expenses
- Non-Selling Expenses
7. Midsized Insurers
- Overall Life Expenses for Midsized Insurers
- Selling Expenses
- Non-Selling Expenses
8. Small Insurers
- Overall Life Expenses for Small Insurers
- Selling Expenses
- Non-Selling Expenses
Appendices
A. Methodology
B. Insurer Categories
Introduction
Life-annuity companies have found challenges in boosting profitability by increasing sales. With respect to life insurance, sluggish sales have been the order of the day, and both annuities and life insurance have been hit with increasing reserve requirements in a low interest rate environment. Claims experience for life insurance has been worse than expected, and net flows on annuities have been challenging profitability. It can be difficult to control sales, benefit levels, and other income sheet items, but one item has often been looked at to boost profitability: expenses.
In this study, Conning explores life insurance and annuity expenses, analyzes how much “economies of scale” and product mix influence a company’s efficiency, and whether low expense ratios lead to higher profitability in the current economic environment. By choosing appropriate peer groups, by size or business focus, insurers can evaluate their own expense trends against the industry.
Our analysis is based on results from 2008 to 2017, focusing on life-annuity insurers and their expenses in life products, both group and individual lines. The study is organized into three main sections.
- The first section, chapter three, provides a high-level view of expense trends for the life-annuity industry and looks at whether low expense companies have a profitability or growth advantage.
- The second section, chapters four and five, provide a detailed look at expense categories, split into selling and non-selling expenses.
- The third section, chapters six, seven, and eight, provide expense trend profiles based on insurer size, as size is the preeminent determinant of overall expense levels.
While the study does cover trends from 2008 to 2017, there is a special focus on trends covering 2013-2017, especially with respect to how expense levels in those years have affected financial results.