By Cyril Tuohy
All assets of U.S. life insurers held in separate accounts ballooned to $2.06 trillion, an 11.9 percent increase over 2011, due partly to last year’s robust stock market and to the popularity of equity-based products as a way to compensate for low interest rates.
Separate account assets support liabilities associated with investment risk found in variable annuities, variable life insurance and pension products. Separate accounts stand in contrast to general accounts whose assets support the contractual obligations for guaranteed, fixed-dollar payments such as those found in life insurance policies.
“Equity-based products, such as variable life insurance and variable annuities, give consumers the opportunity to combine guaranteed features with equity-based features,” said Jiangmei Wang, associate research director of the American Council of Life Insurers (ACLI).
General account assets were $3.70 trillion, an increase of 1.8 percent over 2011, a reflection of the low interest rates and the single-digit annual increases in recent years, the ACLI also said. The numbers are contained in the latest edition of the insurance industry Fact Book 2013, released annually by the ACLI.
Comparing assets held in general accounts with those held in separate accounts provides a tool in assessing the overall health of the industry. Total life industry assets increased last year to $5.77 trillion, up 5.2 percent from 2011, the ACLI said.
“The annual increase in assets tells a good story about the industry’s financial condition,” said Andrew Melnyk, research vice president for the ACLI, in a statement. “Insurers continue to be prepared to make good on the promises they have made to deliver benefits when they are needed.”
The share of assets held in stocks has been growing for more than 10 years so the higher growth rate of separate account assets doesn’t come as a surprise. But the report notes a clear investment shift due to changes in the relative yields of different investments.
“Other factors are the introduction of variable life insurance and the growth in funding pension plans with equity securities of life insurers and variable annuities,” the report said.
Assets in both general and separate accounts invested in long-term bonds amount to $2.93 trillion, up $58 billion from 2011, the report found. Assets held in bonds amount to 50.8 percent of all life insurer assets.
Assets invested in stocks amounted to $1.72 trillion in 2012, a 12 percent increase compared to 2011, the report found. Assets held in stocks amount to 29.9 percent of all life insurer assets, the report also found.
The remainder of assets is divided among mortgages, real estate, policy loans, short-term investments, cash, derivatives and other invested and noninvested assets, according to the report.
On the liability side of the industry balance sheet, policy reserves for U.S. life insurers in 2012 totaled $4.44 trillion, an increase of 4.8 percent over 2011.
Reserves held in general accounts at the end of 2012 were $2.6 trillion, a decrease of .3 percent from 2011, the report said.
Reserves held in separate accounts amounted to $1.84 trillion in 2012, an increase of 13 percent from 2011, the report also said. Of the $4.44 trillion set aside in reserve to pay for life policies and annuity contracts, 65 percent is reserved for annuities, 29 percent for life insurance, 5 percent for health policies, and 1 percent for other types of contracts.
Americans bought $2.9 trillion in new life insurance coverage last year, a decrease of 1 percent from 2011, and by the end of 2012, total life insurance coverage in the U.S. amounted to $19.3 trillion, an increase of 0.5 percent from 2011, the report said.
Total payments into all types of annuities last year were $369 billion, an increase of 3 percent compared to 2011, while annuity reserves jumped 7 percent to $3 trillion, the report found. Contributions to group annuities, sold through employer-sponsored retirement plans, increased to $159 billion in 2012, or 36 percent, compared to 2011.
The largest life insurers by total assets in 2012 were MetLife with $562.1 billion, Prudential with $491 billion, Manulife Financial with $252.1 billion and AIG with $247 billion.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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