Insurance company analysis
Anhdon
insurance_companies.pptxINSURANCE COMPANIES
THE COMPANIES THAT MANAGE HAZARD AND LIFE RISK
PURPOSE OF INSURANCE
RISK TRANSFER FOR A FEE
COMPENSATE INDIVDUALS AND CORPORATIONS IF A PRESPECIFIED ADVERSE EVENT OCCURS IN EXCHANGE FOR A FEE (PREMIUM)
TWO BASIC CATEGORIES OF PROTECTION
LIFE
UNTIMELY DEATH, ILLNESS, OR RETIREMENT
PROPERTY AND CASUALTY
PERSONAL INJURY AND LIABILITY DUE TO ACCIDENTS, THEFT, FIRE, OR OTHER HAZARDS
LI COMPANIES MAY OFFER BOTH LIFE AND CASUALTY AND ALSO HAVE DIVERSIFIED INTO FINANCIAL SERVICES
MUTUAL FUNDS AND REAL ESTATE AND COMMERCIAL LENDING
FAILURE OF EXOTIC FORMS OF PROTECTION A PRIMARY EVENT IN THE CREDIT CRISIS OF 2008-2009
LIFE INSURANCE COMPANIES
CONSOLIDATION IN INDUSTRY SINCE 1988
FROM OVER 2,300 TO ABOUT 1,000 TODAY
10 LARGEST U.S. LIFE INSURERS:
| RANK | INSURANCE COMPANY | ASSETS ($BILLIONS) |
| 1 | PRUDENTIAL OF AMERICA GROUP | $764.1 |
| 2 | METROPOLITAN LIFE | $731.6 |
| 3 | AMERICAN INTERNATIONAL GROUP | $529.1 |
| 4 | TIAA GROUP (not-for-profit stock corporation) | $487.3 |
| 5 | NEW YORK LIFE GROUP (mutual) | $381.0 |
| 6 | HARTFORD LIFE GROUP | $247.1 |
| 7 | STATE FARM INSURANCE (mutual) | $224.7 |
| 8 | LINCOLN FINANCIAL GROUP | $223.2 |
| 9 | NORTHWESTERN MUTUAL GROUP (mutual) | $217.5 |
| 10 | ING USA LIFE GROUP | $187.3 |
COMPARATIVE GLOBAL ASSET SIZE
BANKS ARE MUCH LARGER IN COMPARISON BY ASSET SIZE
AMERICANS ARE THE MOST INSURED PEOPLE ON EARTH
| RANK | INSURANCE COMPANY | ASSETS | DOMICILE | COMMERCIAL BANK | ASSETS | DOMICILE |
| 1 | AXA GROUP | $1,043 | INDUSTRIAL COMM’L BANK OF CHINA | $3,182 | ||
| 2 | PRUDENTIAL FINANCIAL | $ 764 | USA | HSBC HOLDINGS | $2,758 | |
| 3 | METROPOLITAN | $ 732 | USA | CHINA CONSTRUCTION BANK | $2,603 | |
| 4 | ASSICURAZIONI GENERALI | $ 569 | ITALY | BNP PARIBAS | $2,589 | |
| 5 | AIG | $ 529 | USA | MITSUBISHI | $2,509 | |
| 6 | TIAA-CREF | $ 487 | USA | JP MORGAN CHASE | $2,477 | |
| 7 | MANULIFE | $ 468 | AGR BANK OF CHINA | $2,470 | ||
| 8 | ZURICH INSURANCE | $ 409 | BANK OF CHINA | $2,235 | ||
| 9 | NEW YORK LIFE | $ 381 | USA | CREDITE AGRICOLE | $2,346 | |
| 10 | CHINA LIFE | $ 326 | CHINA | BARCLAY’S PLC | $2,267 |
LIFE INSURANCE: PROBLEM OF “ADVERSE SELECTION”
THOSE CUSTOMERS WHO APPLY FOR INSURANCE TEND TO BE THOSE MOST LIKELY AT RISK
INSURANCE COMPANIES CALCULATE PREMIUMS BASED ON PROBABILITY OF A CLAIM PLUS MARGIN
STATISTICAL PROBLEM IF MORE INSUREDS ENTER THE MARKET
ACTUARIES ARE THOSE WHO COMPILE PROBABILITIES OF CLAIM
BALANCE SHEETS – LIFE INSURANCE COMPANIES
| ASSETS ($ billions) | |||||||
| BONDS | $ 2,629.0 | 45.6% | |||||
| PREFERRED STOCK | $ 8.3 | 0.1% | |||||
| COMMON STOCK | $ 73.1 | 1.3% | |||||
| MORTGAGE LOANS | $ 345.4 | 6.0% | |||||
| REAL ESTATE | $ 21.7 | 0.4% | |||||
| CONTRACT LOANS | $ 130.4 | 2.3% | |||||
| CASH & SHORT TERM INVESTMENTS | $ 110.7 | 1.9% | |||||
| OTHER INVESTED ASSETS | $ 139.6 | 2.4% | |||||
| PREMIUMS DUE | $ 25.1 | 0.4% | |||||
| ACCRUED INVESTMENT INCOME | $ 34.6 | 0.6% | |||||
| SEPARATE ACCOUNT ASSETS | $ 2,069.8 | 35.9% | |||||
| OTHER ASSETS | $ 182.3 | 3.2% | |||||
| TOTAL | $ 5,770.0 | 100.0% | |||||
| LIABILITIES | ||||||||
| NEW POLICY RESERVES | $ 2,605.0 | 45.1% | ||||||
| POLICY CLAIMS | $ 43.3 | 0.8% | ||||||
| DEPOSIT-TYPE CONTRACTS | $ 280.3 | 4.9% | ||||||
| OTHER LIABILITIES | $ 435.8 | 7.6% | ||||||
| SEPARATE ACCOUNT BUSINESS | $ 2,067.2 | 35.8% | ||||||
| TOTAL CAPITAL AND SURPLUS | $ 338.4 | 5.9% | ||||||
| TOTAL | $ 5,770.0 | 100.0% |
BALANCE SHEETS – LIFE INSURANCE COMPANIES
LIABILITIES
ASSETS
NEW POLICY RESERVES POLICY CLAIMS DEPOSIT-TYPE CONTRACTS OTHER LIABILITIES SEPARATE ACCOUNT BUSINESS TOTAL CAPITAL AND SURPLUS 0.45147313691507801 7.5043327556325815E-3 4.8578856152512999E-2 7.5528596187175043E-2 0.35826689774696702 5.864818024263431E-2
BONDS PREFERRED STOCK COMMON STOCK MORTGAGE LOANS REAL ESTATE CONTRACT LOANS CASH & SHORT TERM INVESTMENTS OTHER INVESTED ASSETS PREMIUMS DUE ACCRUED INVESTMENT INCOME SEPARATE ACCOUNT ASSETS OTHER ASSETS 0.45563258232235704 1.4384748700173311E-3 1.266897746967071E-2 5.9861351819757359E-2 3.7608318890814557E-3 2.2599653379549393E-2 1.9185441941074525E-2 2.4194107452339686E-2 4.350086655112652E-3 5.9965337954939347E-3 0.35871750433275568 3.1594454072790296E-2
BALANCE SHEET DETAIL
THE NEED TO MATCH ASSETS WITH POTENTIAL CLAIM MATURITIES
IN GENERAL, LONG-TERM TO LONG-TERM
ASSETS
HEAVY INVESTMENT IN LONG-TERM CORPORATE BONDS AND U.S. T-BONDS
LOANS ESPECIALLY LOANS AGAINST INSURANCE POLICIES
LIABILITIES
POLICY RESERVES – EXPECTED ACTUARIAL-BASED FUTURE CLAIMS AGAINST POLICIES INCLUDING DEATH BENEFITS, ENDOWMENT VALUES, AND SURRENDER VALUE OF POLICIES
DEPOSIT-TYPE CONTRACTS SUCH AS ANNUITIES CERTAIN AND GIC
SEPARATE ACCOUNT BUSINESS – FUNDS INVESTED SEPARATELY FROM THE COMPANY’S OTHER ASSETS INCLUDING INVESTMENTS TO FUND ASSET FLUCTUATION RESERVES
The asset valuation reserve (AVR) absorbs both realized and unrealized, credit-related capital gains and losses. The AVR consists of a default component, which provides for credit-related losses on fixed-income assets, and an equity component, which provides for all types of equity investments.
8
INSURANCE COMPANY REGULATION
HISTORICALLY REGULATION ON STATE-BY-STATE BASIS
FEDERAL REGULATION POSSIBLE AFTER SUPREME COURT RULING United States v. South-Eastern Underwriters Association
McCARRAN-FERGUSON ACT 1945 UPHOLDS STATE REGULATORY CONTROL
INSURANCE COMPANY INSOLVENCIES – MID 1970’s TO 1980’S
NAIC – ESTABLISHED BASIC CAPITALIZATION AND LIQUIDITY STANDARDS
GRAMM-LEACH-BLILEY ACT 1999 – SET UNIFORM MINIMUM CAPITAL STANDARDS
DODD-FRANK ACT 2010 – ESTABLISHED CERTAIN CONSUMER PROTECTIONS
United States v. South-Eastern Underwriters Association (1944), holding that insurance was subject to certain federal legislation such as the federal antitrust statute. Narrow ruling opened the door to federal regulation.
The McCarran-Ferguson Act specifically provides that the regulation of the business of insurance by the state governments is in the public interest. Further, the Act states that no federal law should be construed to invalidate, impair or supersede any law enacted by any state government for the purpose of regulating the business of insurance, unless the federal law specifically relates to the business of insurance.
9
PROPERTY-CASUALTY INSURANCE COMPANIES
| RANK | COMPANY | REVENUE | DOMICILE |
| 1 | BERKSHIRE HATHAWAY | $ 143,688 | USA |
| 2 | ALLIANZ | $ 134,168 | GERMANY |
| 3 | MUNICH RE GROUP | $ 90,137 | GERMANY |
| 4 | AIG | $ 71,730 | USA |
| 5 | STATE FARM INSURANCE COMPANIES | $ 64,305 | USA |
| 6 | ZURICH INSURANCE GROUP | $ 52,983 | SWITZERLAND |
| 7 | MS & D INS GROUP HOLDINGS | $ 47,684 | JAPAN |
| 8 | TOKYO MARINE HOLDINGS | $ 43,264 | JAPAN |
| 9 | PEOPLE'S INS COMPANY OF CHINA | $ 36,549 | CHINA |
| 10 | NKSJ HOLDINGS | $ 35,343 | JAPAN |
| RANK | COMPANY | REVENUE |
| 1 | BERKSHIRE HATHAWAY | $ 143,688 |
| 2 | AIG | $ 71,730 |
| 3 | STATE FARM INSURANCE COMPANIES | $ 64,305 |
| 4 | LIBERTY MUTUAL | $ 34,671 |
| 5 | ALLSTATE | $ 32,654 |
| 6 | NATIONWIDE | $ 30,698 |
| 7 | TRAVELERS COMPANIES | $ 25,446 |
| 8 | HARTFORD FINANCIAL SERVICES | $ 21,918 |
| 9 | USAA | $ 19,036 |
| 10 | PROGRESSIVE | $ 15,508 |
LARGEST U.S. PROPERTY-CASUALTY INSURERS
LARGEST GLOBAL PROPERTY-CASUALTY INSURERS
BALANCE SHEETS – P & C INSURANCE COMPANIES
SIMILAR CAPITAL STRUCTURE TO LIFE INSURERS BUT WITH LARGER PROPORTION OF COMMON STOCKS HELD AS ASSETS
BALANCE SHEETS – P & C INSURANCE COMPANIES
ASSETS
LIABILITIES AND SURPLUS
12
INVESTED ASSETS NET DEFERRED TAXES RE-INSURANCE PREMIUM BALANCE ACCRUED INTEREST ALL OTHER ASSETS 0.84389782403027436 1.7561494796594135E-2 2.749526963103122E-2 8.1066698202459792E-2 6.0312204351939446E-3 2.3947492904446546E-2
LOSSES AND LOSS ADJUSTMENT EXPENSES UNEARNED PREMIUMS OTHER LIABILITIES POLICYHOLDER'S SURPLUS 0.37677388836329234 0.127128666 0359508 0.13451986754966888 0.36157757805108798
BALANCE SHEET DETAIL
ASSETS
SHORTER TERM BONDS – COINCIDE WITH UNDERWRITING RISK
OVER 70% IN BONDS AND SECURITES, WITH THE VAST MAJORITY IN BONDS
REINSURANCE – ESSENTIALLY, INSURANCE ON INSURANCE
LIABILITIES
ALMOST 40% - LOSS RESERVES
UNEARNED PREMIUMS – PREMIUMS PAID AT THE START OF THE COVERAGE PERIOD AND BEFORE COVERAGE HAS STARTED
POLICYHOLDER’S SURPLUS (ALSO KNOWN AS CAPITAL SURPLUS) – EXTRA LIQUIDITY IN EVENT F CATASTROPHIC AND UNUSUAL CLAIMS
P & C INSURER RISKS
FREQUENCY OF LOSS - PROBABILITY OF LOSS
SEVERITY OF LOSS - SIZE OF LOSS
LONG-TAIL LOSS
LOSSES THAT OCCUR YEARS AFTER COVERAGE LAPSE, BUT FOR WHICH LIABILITY IS ESTABLISHED FOR A PRIOD DURING WHICH COVERAGE EXISTED
SHORT-TAIL LOSS – LOSSES OCCURING DURING COVERAGE
LOSS RATIOS MEASURE ACTUAL LOSSES RELATIVE TO PREMIUMS EARNED PER LINE
COMBINED RATIO MEASURES ACTUAL LOSSES PLUS COMMISSION COSTS ACROSS ALL LINES RELATIVE TO ALL PREMIUMS EARNED ACROSS ALL LINES
LOSS RATIO OF < 100% MEANS PREMIUMS WERE SUFFICIENT TO COVER LOSSES. HISTORICALLY, LOSS RATIOS HAVE BEEN RISING.
14
INSURER SOLVENCY
RATIOS OF LESS THAN 100% SHOW MARGIN IN EXCESS OF CLAIMS LOSSES
LOSS RATIO =
RL = AMOUNT OF LOSSES PAID / AMOUNT OF PREMIUMS EARNED
EXPENSE RATIO =
RE = POLICY EXPENSES / AMOUNT OF LOSSES PAID
COMBINED RATIO =
RC = LR + ER + DIVIDEND PAYOUT RATIO (IF ANY)
COMBINED RATIO AFTER DIVIDENDS IS A MEASURE OF THE INSURER’S OVERALL PROFITABILITY
OPERATING RATIO =
RO = RC – INVESTMENT YIELD (IN %)
ASSETSLIABILITIES & CAPITAL SURPLUS
INVESTED ASSETS1,427.2$ 84.4%LOSSES AND LOSS ADJUSTMENT EXPENSES637.2$ 37.7%
BONDS940.6$ 55.6%UNEARNED PREMIUMS215.0$ 12.7%
PREFERRED STOCKS11.9$ 0.7%OTHER LIABILITIES227.5$ 13.5%
COMMON STOCKS256.9$ 15.2%
REAL ESTATE16.1$ 1.0%POLICYHOLDER'S SURPLUS611.5$ 36.2%
CASH & SHORT-TERM INVESTMENTS85.8$ 5.1%CAPITAL AND ASSIGNED SURPLUS251.9$ 14.9%
OTHER INVESTED ASSETS115.9$ 6.9%SURPLUS NOTES12.6$ 0.7%
NET DEFERRED TAXES29.7$ 1.8%UNASSIGNED SURPLUS347.0$ 20.5%
RE-INSURANCE46.5$ 2.7%
PREMIUM BALANCE137.1$ 8.1%
ACCRUED INTEREST10.2$ 0.6%
ALL OTHER ASSETS40.5$ 2.4%
TOTAL1,691.2$ 100.0%TOTAL1,691.2$ 100.0%
Sheet1
| PROPERTY-CASUALTY INSURANCE INDUSTRY BALANCE SHEET ($ billions) | |||||||||||||||||||||
| ASSETS | LIABILITIES & CAPITAL SURPLUS | ||||||||||||||||||||
| INVESTED ASSETS | $ 1,427.2 | 84.4% | LOSSES AND LOSS ADJUSTMENT EXPENSES | $ 637.2 | 37.7% | ||||||||||||||||
| BONDS | $ 940.6 | 55.6% | UNEARNED PREMIUMS | $ 215.0 | 12.7% | ||||||||||||||||
| PREFERRED STOCKS | $ 11.9 | 0.7% | OTHER LIABILITIES | $ 227.5 | 13.5% | ||||||||||||||||
| COMMON STOCKS | $ 256.9 | 15.2% | |||||||||||||||||||
| REAL ESTATE | $ 16.1 | 1.0% | POLICYHOLDER'S SURPLUS | $ 611.5 | 36.2% | ||||||||||||||||
| CASH & SHORT-TERM INVESTMENTS | $ 85.8 | 5.1% | CAPITAL AND ASSIGNED SURPLUS | $ 251.9 | 14.9% | ||||||||||||||||
| OTHER INVESTED ASSETS | $ 115.9 | 6.9% | SURPLUS NOTES | $ 12.6 | 0.7% | ||||||||||||||||
| NET DEFERRED TAXES | $ 29.7 | 1.8% | UNASSIGNED SURPLUS | $ 347.0 | 20.5% | ||||||||||||||||
| RE-INSURANCE | $ 46.5 | 2.7% | |||||||||||||||||||
| PREMIUM BALANCE | $ 137.1 | 8.1% | |||||||||||||||||||
| ACCRUED INTEREST | $ 10.2 | 0.6% | |||||||||||||||||||
| ALL OTHER ASSETS | $ 40.5 | 2.4% | |||||||||||||||||||
| TOTAL | $ 1,691.2 | 100.0% | TOTAL | $ 1,691.2 | 100.0% | ||||||||||||||||
