Life insurers have been facing a challenging environment of low interest rates, higher reserve requirements, poorer claims experience, and sluggish organic premium growth. In order to achieve profitability, insurers may be looking to lowering expenses, but that may not drive long-term success, according to a new study by Conning.
"Expense ratios have been rapidly increasing since 2014, often to keep insurers competitive," said MaryPat Campbell, a Vice President, Insurance Research at Conning. "However, we have observed that while expenses have risen, there has been no noticeable connection to improved sales or operating results in many instances."
The Conning study, "Life-Annuity Industry Expenses: Treading Water" explores life insurance and annuity expenses, analyzes how much "economies of scale" and product mix influence a company's efficiency, and whether low expense ratios lead to higher profitability in the current economic environment. By choosing appropriate peer groups, by size or business focus, insurers can evaluate their own expense trends against the industry.
"Technology expenses have been growing faster than other expense categories," said Steve Webersen, Head of Insurance Research at Conning. "Larger life insurers have lower expense ratios compared to smaller insurers and can absorb these expenses better through economies of scale. However, we have found that even lower expense ratios do not necessarily translate to higher profitability. Perhaps these expense increases can boost future growth and profitability, but results from recent years did not show a connection."
"Life-Annuity Industry Expenses: Treading Water" is available for purchase from Conning by calling (888) 707-1177 or by visiting www.conningresearch.com.
Conning (www.conning.com) is a leading investment management firm with a long history of serving the insurance industry. Conning supports institutional investors, including pension plans, with investment solutions and asset management offerings, risk modeling software, and industry research. Founded in 1912, Conning has investment centers in Asia, Europe and North America.