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United States Insurance Report Q1 2012
Business Monitor International, Dec 2011, Pages: 88
The second half of 2011 has not been a vintage period for any of the major segments of the massive US insurance sector. Insurers of all kinds are battling a number of fundamental challenges: the softness of the US economy, which has resulted in a lack of confidence on the part of both households and businesses; massive claims from catastrophes, both in the US and elsewhere; brutal swings in global stock markets (and some bond markets) in Q311 (although it has to be noted that October was one of the best single months on record for the major US equity indices; extraordinarily low interest rates; rising costs associated with regulation, and rising reinsurance costs.
Yet the news is not all bad. For the largest life companies, demand for annuities continues to grow apace: many of the leading providers of annuities reported double-digit growth in sales in Q311 relative to Q310: it appears that US savers and investors see annuities as a particularly attractive vehicle for their savings at a time of financial market volatility, continuing a glut of real estate and rock bottom interest rates. Particular companies argue that they are benefiting from a ‘flight to quality.’ Others note that sales of particular savings and wealth management products (i.e. not necessarily annuities) are growing very quickly. Some companies are allowing sales of certain lines to contract as a result of deliberate policy to focus on profits rather than market share. In essence, the general slippage in profits that has resulted from an increase in reserves (given the behaviour of financial markets in Q311) has overshadowed real growth in large sections of the life insurance segment.
The latest figures indicate that the non-life segment (and its reinsurers) have easily been able to bear the costs of catastrophes in H111 which, according to industry bodies, amount to around US$24bn (including US$3-5bn pertaining to disasters that took place outside the US). The property & casualty insurers may be near a cyclical low for profitability. If the experience of property & casualty underwriters in other developed countries is anything to go by, they may well be able to pass on the higher costs of reinsurance to their customers. In the meantime, the major health insurers remain reasonably upbeat about their businesses.
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