Life Insurance going under?

A recent study by LIMRA showed the number of individuals owning life insurance has hit a 50-year low.

As Robert Kerzner, president and CEO of LIMRA, said, “The numbers tell a grim story.”

LIMRA, Windsor, Conn., found just 44% percent of U.S. households have individual life insurance. The number of U.S. households with no life insurance coverage at all had grown to 30% of households (35 million), from 22% in 2004, the last time LIMRA undertook its study. Among households with children under age 18, 11 million have no coverage.

The question raised by the study is, is life insurance in decline? Is it ever going to get better?

In general, the ratings services seem to think it will.

Generally, the ratings services look at the industry’s financial health in terms of invested assets, cash reserves and the like, and not so much at sales. But observers note that consumers are less likely to put their bets in terms of life insurance and annuity contracts on firms with shaky finances. So ultimately, the opinion of the rating agencies have a significant impact on sales.

Fitch Ratings in early September upgraded its outlook for the U.S. life insurance sector to stable. That came two years after Fitch gave the industry a negative outlook due to unease among its researchers over the weakening in the credit and equity markets and the likely impact that could have on the industry’s capital, earnings and liquidity.

A stable outlook means Fitch expects to affirm ratings for the vast majority of life insurers over the next 12 to 18 months.

 Commenting on LIMRA’s findings, Douglas Meyer, managing director of Fitch, says it makes sense for the industry’s sales to rebound from the significant stresses on the financial markets in the first half of 2009.

Policy ownership is down because a number of families felt they had to drop their policies due to other pressing financial concerns, Meyer believes.

Fitch upgraded its outlook for the industry because carriers generally performed well throughout the financial crisis in comparison to other financial institutions and went into the crisis equipped with a strong capital base, Meyer says.

“The profile of the industry is fairly stable and will continue to be so throughout the financial crisis,” Meyer says. “We felt going into the crisis the industry would be affected by the downturn, so ratings broadly would be impacted. But they were relatively limited, with downgrades of one or two notches, and that’s been case for the last two years.”

Trevor Thomas is an Associate Editor of National Underwriter’s Life & Health/Financial Services edition.


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