In December 2008, the National Bureau of Economic Research officially announced that the United States is in a recession. The effects of the failing economy are most noticeable in the credit markets and have been reflected in the value of the stock market. Profits for many of the largest life insurers were adversely impacted by the subprime mortgage crisis in the U.S. housing markets. In 2008, life insurers reported a net loss of over $52 billion compared to a net profit of $29 billion in 2007. While this sounds like a lot of money for them to lose, it is important to know life insurers still control over $4.5 trillion in net assets. Thus, the $52 billion is a loss of less than 2% of the assets available to insurers to make good on the promises they made to their policyholders.
Interestingly, the premiums written by life insurers grew in 2008; they are up 3.8% from 2007 with a premium volume of over $800 billion. The principle area of growth occurs in annuities and other deposit-type insurance contracts. They are up 7.1% to over $465 billion. Regulators generally believe this reflects a move away from the stock markets into less risky investments by the public and U.S. businesses. Regulators are confident that, overall, the life insurance industry is solvent and almost all life insurers will be able to continue to pay claims as needed. For the few that may fail, state legislatures have enacted guaranty funds for the protection of policyholders and claimants so that the public is not harmed.
While 2008 profits for the life insurance industry are down, life insurers tend to invest for the long-term rather than short-term. Thus, life insurers have generally fared much better during these hard economic times than banks and securities firms. Historically, there have always been some life insurance failures. In fact, insurance regulators do not attempt to assure the public that there are no failures. To do so would mean regulation must be targeted toward saving the most inefficient insurer. Insurance regulators believe most life insurers are reasonably well-capitalized and the life insurance industry is well-positioned for success in the future. |