Global Life Insurance Industry Set to Generate $1,600BN In Shareholder Value Over Next Ten Years, According to New Mercer Oliver Wyman Study

Business Wire, June 14, 2004

Business Editors

NEW YORK--(BUSINESS WIRE)--June 14, 2004

As Industry Emerges From Several Challenging Years,

Life Insurers Need to Plan Aggressively for Growth

The life insurance industry, emerging from several challenging years, is poised to generate $1,600BN in shareholder value over the next ten years according to a new study by Mercer Oliver Wyman. This growth rate outpaces global GDP expectations by 50%, and is greater than for other sub-sectors of the insurance industry. These findings are based on Mercer Oliver Wyman's expert analytical views as well as in-depth interviews with senior executives at major life insurance companies globally.

Mercer Oliver Wyman also sees competition for shareholder value splitting the life industry into three sectors: a handful of global behemoths or 'global-balance sheet factories' who will dominate the market and increase their share of value creation from 20% today to 35% in ten years; those regional retailer-wholesalers who survive a wave of restructuring and consolidation that will see the overall market share of life insurers fall from 50% today to 35%; and a rising number of specialists, who will see their market share growing, focused on particular product niches, on tapping into growth in outsourcing, or on distribution and building close relationships with customers across multiple product needs.

"Life insurance companies need to move away from the defensive strategies they employed during the four-year downturn - a period which saw the diminution of the sector's market capitalization - to a more offensive position," said Henry Essert, Director at Mercer Oliver Wyman. "This will involve re-igniting investment in growth opportunities, in both domestic and international markets. The return to offensive, growth-oriented strategies is essential if life insurers are to regain market share as other financial services companies step up their assault in the battle for customer assets."

Other key findings from the study include:

-- North America is the largest life insurance market, expected

to account for 42% of the overall $1,600 billion of potential

shareholder value -

-- Life insurers suffer, however, from a declining share in

overall personal financial assets - having dropped from

11% in 1991 to 8% in 2003 - and from a relatively weak

position in the long-term savings market.

-- Some newly developed product lines are expected to grow

significantly, such as post-retirement products and living

benefits.

-- Only the U.S. market is big enough to support insurers who

can focus on a specific niche which makes the U.S. an

attractive, but cautious, investment opportunity.

-- Regional insurers in Canada need to be broad-based players

as they are small by comparison. Consequently, Canada is

not an attractive market for global insurers.

-- Europe will account for about 38% of the $1,600 billion value

over the next decade -

-- European life insurers have a stronger position in the

long-term savings market, which is in many countries

driven by a guarantee-based value proposition and

supported by favorable tax incentives.

-- There is pressure on this value proposition because of a

stricter solvency-focus and capital constraints as well as

from a 'leveling of the playing field' in the regulation

and taxation of financial services offerings.

-- Across Europe, there is significant diversity in market

development. Countries like Turkey have almost no life

insurance market in existence, while many other European

markets are in the process of transforming and maturing.

Some markets, such as the UK, are already super-mature.

-- Opportunities differ even among countries at a similar

stage of market development. Each country has its own tax

and regulation system, channel structure, products, asset

allocation, wealth and wealth inequality. All of these are

important factors affecting investment decisions.

-- Japan accounts for 12% of total global value due to its

current size, but growth prospects are limited -

-- Financial reform in Japan is creating new markets and

expanding the size of existing ones.

-- The creation of a DC market has enabled US 401(k) players

such as Principal to enter the market through joint

ventures.

-- The partial deregulation of bancassurance for annuity

sales has prompted rapid growth in the variable annuity

market, where foreign companies are gaining share.

-- The Rest of the World accounts for just 8% of total global

value, despite some significant relative growth numbers -

-- Most markets are extremely small, but have major

potential.

-- There is huge disparity between markets, such as

mega-developers like China; large and almost developed, as

in Korea; rich developing, such as Singapore;

super-growers like Indonesia; and virtually non-existent

markets, as in sub-Saharan Africa.

"We believe that the life insurance sector has an opportunity to seize back from asset managers and banks the growth agenda in the management of personal financial assets, by returning to and building on its core strengths in financial protection, customer capture and risk management," Harvey Weinberg, Managing Director at Mercer Oliver Wyman said. "However, there will be continued turbulence over the next few years, as some institutions are able to meet the agenda of offense successfully, and some are not."