Smaller Insurance Companies Keeping Pace Among Top 20 Carriers

By Linda Koco

When scoping out a life and annuity carrier as a market for possible future business, producers often start by looking at the nation’s largest carriers. Their reasoning is that these will be the most successful companies and therefore best for their clients.

But a new study from Conning gives reason to cast a wider net.

Several small- and mid-sized companies are successful too, the Hartford investment management company says in its “Individual life-Annuity Growth and Profit Leaders” report.

What’s more, small carriers have many traits in common with their large- and mid-sized counterparts, including a decided presence in social media.

The small company phenomenon

In fact, eight small companies made Conning’s 2015 list of top 20 most successful individual life and annuity carriers. Eight large carriers made the list as well, as did four mid-sized carriers.

To be considered a leader, a company must demonstrate specific percentage increases in premiums, net operating margin, return on average surplus, and annualized individual sales over the study period.

Significantly, 12 of the 20 companies on the 2015 list of leaders also made last year’s list, and five of the 12 made the leaders list in 2013 too.

This consistency in successful leaders is a new element in the ongoing Conning studies of individual life and annuity market leaders, said Terrence Martin in an interview with InsuranceNewsNet. He is director-insurance research for life, annuities and health at Conning. The studies began in 2004.

The emerging consistency among leading companies may be due in part to the greater stability in the post-recession market, Martin said.

But worth noting that it was not just large carriers that made the list more than one time. Five small carriers made the list last year, and one small carrier made it for three years in a row. That supports the message that size is not a characteristic of success.

Smaller companies may not be well known outside of their multi-state regions or their target markets (such as a fraternal), Martin said. “But this study shows that if carriers know their market and products and if they meet customer needs in their niche, they can do quite well.”

That’s a message that other companies may want to consider, he said.

Social media

One surprise in the study is that the leading life and annuity carriers tend to have a prominence in social media.

“We did expect large companies to demonstrate social media prominence, but what we found is that a lot of the smaller companies have prominence in this area too,” said Martin. “For instance, of the 60 smaller companies, 55 percent were on Facebook and 33 percent were on Twitter.”

Conning determines social media prominence by whether a carrier has social media icons on the “home page” and/or “about us” page of its website. The icons it tracked were those of social media leaders such as Facebook, Twitter, YouTube, LinkedIn and Google Plus.

An effective social media presence may have helped carriers meet the sales criteria for being a leader, the researchers said. “But it is too soon to tell how large a role social media played in that growth.”

Distribution and expenses

Producers will be interested to see that the leading small and large companies have higher distributor productivity compared to their overall corresponding group. Conning bases productivity on a ratio of premium volume divided by commissions, Martin said.

“This advantage becomes more pronounced when agency expenses are included in the analysis,” he added, explaining that Conning looks at productivity both ways, because some carriers do pay agency expenses while others don’t.

Regarding the sometimes touchy area of expenses, the researchers found the expense efficiency does not always predict success. Expense efficiency does correlate with company size, but “the companies meeting the criteria for the leading group do not always have the lowest expenses in their size group.”

Longer bond portfolios

Another notable characteristic is that today’s leading companies “more aggressively lengthened their bond portfolios after the financial crisis.” This is especially evident among the small and mid-sized leaders, the report says. The large carrier leaders went longer too, but as part of their overall longer portfolio strategy.

The smaller carriers in general increased their bond maturity from 8.4 years in 2009 to over 9.6 years five years later. But leaders among the small companies lengthened their portfolios even more, Martin said. “The leaders went from 8.65 years to 11.65 years.”

The mid-sized companies’ approach to bonds was “more muted” but still an increase. Overall, they lengthened their bond portfolios from 7.9 years to 8.7 years, he said, while the leaders in this segment went from 7.4 years to 8.5 years.

At large companies, the overall maturities went from 8.5 years to 10 years, while the leaders among the large companies went from a slightly longer duration of 9.6 years to 10.4 years five years later.

In many cases, the carriers probably took this step as part of “an effort to pick up yield,” Martin suggested.

Category 2 bonds

A companion trend having to do with bonds is the decision made by many carriers—particularly by smaller carriers—to increase their exposure to NAIC Category 2 bonds.

Particularly for smaller companies, “a willingness to expand their exposure to Category 2 bonds may have helped them improve their investment results above their peers,” the researchers said in the report.

NAIC Category 2 bonds have a higher credit risk than NAIC Category 1 bonds, Martin pointed out, “but they still represent quality.” As for the Category 1 bonds, “they remain the largest category in insurance company portfolios.”

Other traits

Some other successful company traits the researchers found include:

Policy size: Small-, medium- and large-sized leaders issued policies of the same face amount rather than chasing ever higher amounts.
Single premium products: Small and large life and annuity leaders have a higher dependence on single-premium products.
Product mix: Leading companies appear to find an “optimal product mix” that works for them and they maintain it, the report said. This suggests a “relative stability” in mix among the leaders.
Capital levels: Capital levels do not appear to be a predictor of success, whether measured by growth, capital leverage or risk-based capital ratio.

The 2015 study looked at 125 small, medium and large carriers, as well as 97 “micro” companies in the individual life and annuity market. The comparisons mentioned in this article zero in on trends among the 125 small, medium and large carriers.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].