The life insurance industry in the United States : an analysis of economic and regulatory issues

Abstract

The U.S. life insurance industry comprises more than 1,200 active companies with an impressive record of innovation. Annual premiums for life insurance and annuity products amount to about 5 percent of GNP and total assets to 26 percent of GNP. Life insurance companies are major participants in U.S. capital markets, investing in all types of bonds, mortgage loans and mortgage-backed securities, and corporate equities. In describing the characteristics of products that life insurance companies offer, the author highlights how fiscal incentives promote long-term financial savings. Insurance regulation is fragmented among state authorities, but coordinated through the National Association of Insurance Commissioners. Regulation emphasizes prudence and solvency. There are no minimum requirements for investing in government bonds or"high-priority"sectors, but tight maximum limits are often imposed on different assets, especially holdings of corporate equities, and on agents'commissions. The lack of satisfactory measures of efficiency and profitability, which is explained by the long-term nature of the contracts, differences in the use of mortality tables and discount rates, and differences in the valuation of assets and the treatment of unrealized capital gains. This hampers an objective assessment of the industry's performance and raises problems for insurance taxation. Some public policy issues that affect life insurance companies are also reviewed.Health Economics&Finance,Contractual Savings,Insurance&Risk Mitigation,Non Bank Financial Institutions,Environmental Economics&Policies