Slow and Steady Insurance Companies Win the COVID Race – InsuranceNewsNet
“Slow and steady wins the race” isn’t just the conclusion of an insurance executive’s favorite fable, it’s a winning strategy throughout COVID-19, according to AM Best.
Overall, the industry has performed well, with a 30% increase in operating results in 2021 compared to 2020, according to AM Best’s report, “Limited COVID-19 Impact on US L/ A Operating Performance Metrics”. But the companies that fostered slow, steady growth with little volatility are the ones that deserved a victory dance in the final zone.
Not that the past few years have been easy. Although doubts have been expressed about the tally of COVID deaths, there is no evidence that death claims have skyrocketed.
The life insurance industry typically paid around $80 billion in claims per quarter prior to the first quarter of 2020. These claims jumped quarterly by around $100 billion in the last quarter of 2021, a jump of 28% since the end of 2017.
The companies that have sailed the best are those that have not surged and have lagged in net premiums between quarters. Carriers that step out of line tend to lose their wind in the longer contest.
“Successfully growing a volume of business takes time and capital,” according to the report. “Insurers that grow quickly may offer more customer-friendly features, commissions and credit rates, but they may not translate into profitability. High growth is not sustainable.
The companies that AM Best assessed as the strongest over time had more stable trends and diversification across product lines, resulting in consistent revenue growth. These companies tend to hold higher levels of surplus, which they can use with their economies of scale to reduce their operating expenses. Lower expense ratios also allow companies to offer more competitive rates.
“Volatile earnings generate uncertainty and can lead to irregular capital accumulation,” the analysts wrote. “Over the past 20 years, companies rated as very strong in operational performance reported no operating loss at all, compared to 5.9% of the time for strong companies and more than 35% of the time. for marginal businesses.”
Losses as a percentage of capital and surplus were also less severe.
Although the AM Best report shows that slow and steady operations tend to reflect slow and steady growth, cautious companies had a hell of a year in 2021, according to another report.
A recent report by S&P showed that generally stable mutual companies have done extremely well. Northwestern Mutual led the individual life chart with a 20% year-over-year gain.
Whole life products, the province of mutuals, saw an unusual surge, with a 27% increase in the fourth quarter of 2021, representing the strongest quarterly premium growth for this product line in 30 years , according to LIMRA. Eight of the top 10 carriers of whole life insurance experienced double-digit growth.
LIMRA expects whole life growth to slow this year, but maintain strong premium growth of 10%.
Sales of variable products, which tend to track current stock market performance, posted stunning results, with sales up 65% in the last quarter of 2021. Protection-focused LCV sales increased 33% , but buildup-focused LCV sales more than doubled.
Open-end universal life hasn’t performed so well since 2008, when the stock market crash dragged LCVs with them. Since then, slower and more stable stationary products have won the race.
Steven A. Morelli is editor for InsuranceNewsNet. He has over 25 years of experience as a journalist and editor of newspapers and magazines. He was also vice-president of communications for an association of insurance agents. Steve can be reached at [email protected]
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