Ernst & Young LLP Issues 2007 U.S. Industry Outlook for Life Insurance Industry

Business Wire, Dec 20, 2006

NEW YORK -- In 2007 the life insurance industry is looking forward to a year of continued good performance, opportunity and tough competition for the loyalty of a new generation of retiring consumers, according to Ernst & Young's Global Insurance Center.

"With an aging population and an increasing number of retirees, we anticipate good sector performance in 2007 with solid fees, dependent on stock market performance and premiums across product categeories," said Pete Porrino, Insurance Leader, Ernst & Young LLP and the Global Director of Insurance, Ernst & Young Global Insurance Center. "For global companies, the weakening dollar will be good for earnings growth."

Six key issues will shape 2007 for the life insurance market:

1. Economic and industry fundamentals: Long-term consolidation will likely continue among both stock and mutual companies and weaker competitors will be squeezed out of the market. In the U.S., general unease about long-term economic security and concerns about social security, Medicare/Medicaid and reduced employer-paid health and retirement benefits, will compel interest among consumers in self-funding and insuring their retirements.

2. Organic growth: There is an opportunity for growth in the "middle wealth" retirement market, the middle two-thirds who are less than truly wealthy but also far from impoverished. Life insurance companies have the opportunity to introduce both new forms of advisory services and innovative income-generating protection products.

3. Risk management: Insurers will continue to improve their risk management frameworks, governance, risk measurements and reporting. Solvency II developments in Europe will likely impact many of the larger insurers in the United States and International Financial Reporting Standards (IFRS) Phase II exposure draft is likely to be released soon. Specific areas of importance in 2007 will be: economic capital, suitability and market conduct and hedging.

4. Capital management: Capital management discipline will continue to be integral to business and acquisistion strategies. Life insurance companies will continue to seek securititzation and other market solutions, while facing continued pressure to retain more of the risks on their balance sheets. When principles-based statutory reserving approaches are adopted in the United States, capital management strategies will be re-examined and adjusted accordingly.

5. Finance transformation: Internal finance and actuarial organizations need to do more with less, better support strategic and tactical decision-making and manage under multiple reporting regimes. Infrastructure and cost-cutting are still a high priority and off-shoring may come of age in a year or two.

6. Regulatory and compliance: Companies will place a greater emphasis on compliance and ethics practices including assessing and documenting compliance risk and related controls. In the U.S., the federal charter is still an open issue.

"In 2007, changing demographics will offer the greatest opportunity for growth. An aging population will be looking for a full-spectrum of retirement services from helping fund longevity to providing financial protection to loved ones in the event of death," said Porrino. "To fully leverage this trend, life insurance companies will need to develop innovative services to compete against financial services companies and to win customer loyalty in this lucrative market segment."

About Ernst & Young's Global Insurance Center

The Center is the hub of the Ernst & Young network of professionals dedicated to serving the global insurance market and connects our people around the globe, sharing information and experience on current and emerging industry issues. The goal is to help our global insurance clients address their complex issues by drawing on our broad range of services including: assurance, tax, actuarial & risk management, regulation & compliance, internal audit, finance and performance management, transaction advisory services, and technology advisory to support these services.

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