Industry Surveys

Insurance: Life & Health

September 13, 2007

CURRENT ENVIRONMENT..................................................................1
Earnings gain in 2006
Tanjila Shafi Annuities: variable products still dominate
Life & Health Equity-indexed annuities hit a bump
Insurance Analyst Variable universal life sales pick up
A challenging interest rate environment
Industry consolidation focuses on scale and scope
An evolving regulatory environment
S&P Ratings Services View:
Credit quality will depend more on risk management
Life settlement segment draws scrutiny
INDUSTRY PROFILE...............................................................................9
Large, well-known companies dominate a mature industry
INDUSTRY TRENDS .................................................................................9
Changing demographics create new opportunities
Distribution channels have been shifting
M&A activity focuses on scale and scope
The demutualization trend takes a pause
Contacts: Capital market activity may slow
Legislative changes impact wealth products
Inquiries & Federal regulation for life products appears unlikely
HOW THE INDUSTRY OPERATES .............................................................15
Client Support
Ownership structures differ
800.523.4534
Types of assets
clientsupport@ Finding funds for investment
standardandpoors.com Two accounting methods
Types of products
Sales Distribution
800.221.5277 Regulating the industry
roger_walsh@ KEY INDUSTRY RATIOS AND STATISTICS ...................................................23
standardandpoors.com HOW TO ANALYZE A LIFE INSURER ........................................................23
Macroeconomic indicators
Media Profitability
S&P Ratings Services View:
Michael Privitera
Evaluating a life insurance company’s creditworthiness
212.438.6679
Liquidity
michael_privitera@ Leverage
standardandpoors.com Operating and GAAP earnings
GLOSSARY .............................................................................................29
Replacement copies INDUSTRY REFERENCES.....................................................................33
800.852.1641 COMPARATIVE COMPANY ANALYSIS ..............................................36
THIS ISSUE REPLACES THE ONE DATED DECEMBER 7, 2006.
THE NEXT UPDATE OF THIS SURVEY IS SCHEDULED FOR MARCH 2008.
Standard & Poor’s Industry Surveys
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VOLUME 175, NO. 37, SECTION 2

THIS ISSUE OF INDUSTRY SURVEYS INCLUDES 3 SECTIONS.
 C URRENT E NVIRONMENT
Earnings gain in 2006
Earnings growth was solid for many of the
major industry players in 2006, building on
a stable performance in 2005. The larger life
insurers generally cited an increase in net in-
vestment income, strong growth in interna-
tional businesses, and benefits from a diverse
portfolio of insurance and retirement prod-
ucts as the main drivers for earnings gains
in 2006. In addition, many companies stat-
ed that earnings in 2006 benefited from
better expense management as they stream-
lined operations, trimming businesses that
were not strategically aligned with long-
term objectives.
The more geographically diverse compa-
nies benefited from strong international
growth, particularly from Latin America and
the Asia-Pacific region. Share repurchases
also contributed to earnings per share (EPS)
growth in 2006. In addition, earnings were
helped by higher investment income, with the
yield on the 10-year Treasury note rising
from 4.37% to 4.71% in 2006, and by a
strong equity market performance, with the
S&P 500 increasing 13.6% that year.
These results build on the industry’s finan-
cial performance in 2005. According to data
from industry group the National Associa-
LIFE INSURANCE INDEX OUTPERFORMS
(Index: January 2, 2003=100)
250
225
200
175
Life/Health Insurance Index Financial Index
150
S&P 500
125
100
2004 2005 2006 2007
Source: Standard & Poor’s.
tion of Insurance Commissioners, via High-
line Data LLC, the life and health insurance
industry’s premiums and annuity considera-
tions rose 10% in 2006. Furthermore, net in-
vestment income rose 2.3%, and total capital
and surplus increased 3.9%.
Standards & Poor’s expects earnings mo-
mentum to continue into 2007. We believe
earnings for the major industry players will
benefit from higher investment income,
growth in international operations and solid
share repurchase activity. We believe that sol-
id equity market performance should boost
earnings for equity-sensitive products, and
we believe that spread compression should
be somewhat alleviated if the recent steepen-
ing of the yield curve continues. Further-
more, we expect earnings for companies with
a diverse geographic base will benefit be-
cause of our view that the international mar-
ket offers higher growth opportunities than
the domestic market.
Annuities: variable products still
dominate
Annuity sales continue to bolster life
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
and health insurance revenues, with sales
of variable annuities leading the way. Ac-
cording to LIMRA International, Inc., an
industry trade group, total annuity sales in-
creased 9.1% to $236.2 billion in 2006.
Variable annuity sales were up almost 17%
over the same period. The strength in vari-
able annuity sales was partially due to
strong equity market performance. Equity
market performance as measured by the
S&P 500 index rose 13.6% in 2006. In ad-
dition, the popularity of guaranteed living
benefits riders on newer products boosted
sales. These riders offer minimum guaran-
tees plus the possibility of gains.
New sales of variable annuities for 2006
rose more than 17% to $154.9 billion from
$131.4 billion, according to data from indus-
try tracker VARDS. Variable annuities assets
1
 TOP 20 WRITERS OF Investors get a guaranteed return, tax-
GROUP LIFE INSURANCE — 2006 deferred, as they would through a fixed an-
(Ranked by net premiums written)
nuity, but the return rises if the underlying
PREMIUMS
COMPANY (MIL. $) equity index performs well.
1. Metropolitan Group 7,746 Sales of equity-indexed annuities
2. Prudential of America 6,696 reached $27 billion in 2005, according to
3. Hartford Fire and Casualty 1,949 Advantage Compendium, up from $23 bil-
4. CIGNA 1,375 lion in 2004 and $14 billion in 2003. After
5. New York Life 1,297 increasing for 11 consecutive years, sales of
6. Aetna Life and Casualty 1,163 EIAs declined in 2006.
7. Minnesota Mutual 1,162
The growth in equity-indexed annuities
8. Nationwide Corporation 1,033
helped to boost profits at a number of life in-
9. ING America 984
10. Sun Life Assurance 922 surers. EIAs are lucrative for the industry:
11. UnumProvident Life 802 commissions average 8.5% to 9%, but they
12. Mass Mutual Life 729 go as high as 10%, compared with a com-
13. Stancorp Financial 656 mission rate of 2% to 3% on traditional mu-
14. American International 504 tual funds. Allianz Life Insurance Co. of
15. HCSC 499 North America, a unit of German financial
16. Assurant Group 439 services giant Allianz SE, is the US leader in
17. Forethought Financial 427 index annuity sales. Solid sales growth and
18. Lincoln National 412
high commission rates have made the market
19. AEGON USA 408
more competitive as other life insurers enter
20. Wellpoint Group 331
and chip away at Allianz’s dominant 19.6%
Source: National Association of Insurance Commissioners,
via Highline Data, LLC market share position.

Variable universal life sales pick up

climbed 14.3% to $1.36 trillion as of De-
cember 31, 2006, according to VARDS.
According to LIMRA, sales of fixed annu-
ities declined 4.2% to $75.6 billion in 2006.
Part of the decline was due to the rise of short-
term interest rates, which led to increased com-
petition from bank certificates of deposit.
Equity-indexed annuities hit a bump
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
According to LIMRA, individual life in-
surance sales increased 7% in 2006, the
largest increase since 2000. The total face
amount increased by 4%, but the number of
new policies sold decreased by 1%. Further-
more, variable universal life sales increased
by 9% in 2006, the first increase in six years.
The increase in variable universal life sales
may be attributable to innovative product

Sales of equity-indexed annuities (EIAs) de-
clined 7.2% to $25.3 billion in 2006, accord-
ing to data from industry tracker Advantage
Compendium. Sales of EIAs were hurt by high-
er bank interest rates and negative attention
surrounding the National Association of Secu-
rities Dealers’ Notice to Members 05-50, which
addresses the responsibility of broker-dealer
firms to supervise the sale of EIAs, which
currently are not registered under the federal
securities laws. (This issue is discussed fur-
ther under “Annuities remain under scruti-
ny” toward the end of this section.)
Equity-indexed annuities have been
among the industry’s more popular products:
sales rose 18% in 2005, and EIAs accounted
for 40% of all fixed deferred annuity sales.
EIAs are linked to a stock market index,
such as the S&P 500 Composite Stock index.
features such as death benefit guarantees, as
well as to marketing efforts from broker gen-
eral agents and wirehouses, distributors who
traditionally have not been major marketers
of the product.
A challenging interest rate
environment
Investment income saw improvement in
2006 as interest rates increased. At the be-
ginning of 2006, the 10-year Treasury note
yielded 4.37% and peaked in June 28th,
reaching 5.24%. By year-end, the yield had
declined to 4.71%. Overall, the 10-year
Treasury note rose 34 basis points in 2006,
which boosted investment income, an impor-
tant source of revenues for life insurers. In-
terest rates continued to rise in 2007. In the

2
 TOP 20 WRITER OF ORDINARY lowering minimum crediting rates (i.e., the
LIFE INSURANCE — 2006 interest rate offered) on new policies and
(Ranked by net premiums written)
PREMIUMS
could encourage higher surrender activity
COMPANY (MIL. $) on existing policies already at minimum
1. American International 18,055 crediting rates.
2. Northwestern Mutual 9,911
This spread compression could lead to
3. Metropolitan Group 7,784
more problems as multiyear guarantee an-
4. New York Life 6,616
5. Prudential of America 4,011
nuities begin to mature. These products,
6. Mass Mutual Life Insurance 3,820 which offered three- to 10-year guarantees,
7. Lincoln National 3,634 sold heavily between 2001 and 2003. As
8. State Farm 3,373 they mature, money could be withdrawn,
9. AXA Insurance 3,107 unless the industry has adequate alterna-
10. AEGON USA 3,093 tives to offer. The tight interest rate
11. Swiss Reinsurance 2,647 spreads make it more difficult to offer at-
12. Guardian Life Insurance 2,524 tractive alternatives. However, the yield
13. Pacific Life 1,817
curve has recently begun to steepen, which
14. John Hancock 1,785
will help alleviate spread compression,
15. Hartford Fire and Casualty 1,762
16. Allstate Insurance 1,717
boosting investment income.
17. Nationwide Corporation 1,594
18. Sun Life Assurance 1,564 Earnings outlook becomes less certain
19. Citigroup 1,436 The current interest rate environment, rel-
20. ING America 1,353 atively flat yield curve, and increasing sales
Source: National Association of Insurance Commissioners, competition may make it more difficult for
via Highline Data, LLC
the life insurance industry to continue to
post the kind of strong earnings growth it
enjoyed during 2006.
first half of 2007, the 10-year Treasury note Those life insurers with more pronounced
increased 34 basis points to yield 5.03%. Al- exposure to spread-based products (including
though still at relatively low levels, the high- fixed annuities and universal life insurance)
er yield provided a boost to investment might be hurt more by the challenging inter-
income and, thus, operating income. est rate environment. Standard & Poor’s be-
However, despite 17 increases in the tar- lieves that sales of fixed annuity policies have
get for the federal funds rate between June suffered, as low crediting rates have made
2004 and June 2006 — for a total increase the products less attractive relative to other
of 425 basis points — the yield on the 10- investment choices.
year Treasury note has actually fallen since Net investment income is also likely to be

SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY

mid-2006. As of July, 16th, 2007, the 10-
year Treasury yielded approximately 5.04%.
Improving bond default experience compli-
cated matters further for life insurers by
leading to tighter yield spreads between
Treasury and investment-grade corporate
bonds, which make up a large part of life
insurers’ investments.
As a result, new money inflows and pro-
ceeds from maturing or liquidated portfolio
assets have generally been invested by life in-
surers at rates of return near or lower than
existing investments, putting pressure on
portfolio yields. With portfolio yields declin-
ing, spreads on deposit-type funds and con-
tracts have narrowed, as many policies have
been reaching their minimum crediting rates.
Moreover, rising short-term interest rates
may keep life insurers from aggressively
hurt by the relatively low yields seen in
2006. As mentioned earlier, new money in-
flows and proceeds from maturing or liqui-
dated portfolio assets have generally been
invested by life insurers at rates of return
near or lower than existing investments,
putting pressure on portfolio yields.
Stocks hit by subprime concerns
After seeing stock market returns of 20%
or more in each of the past three years, the
S&P US Life and Health Insurance index
recorded a 15.0% gain in 2006. The gain in
the index compares with a 16.2% gain for the
broader S&P Financials index and a 13.6%
gain for the S&P 500 during that year. In
our view, the life and health insurance
group’s outperformance versus the S&P 500
index in 2006 resulted from favorable com-

3
 pany-specific M&A developments, business
restructurings, and turnaround stories.
However, whether the share price gains
for the Life and Health Insurance index
can continue in 2007 remains uncertain. A
weakening housing market, credit quality
concerns, and especially subprime issues
have plagued life and health insurance
stocks recently. Through August 17, 2007,
the S&P Life and Health Insurance index
rose 5.7%, year to date, versus a 6.9% de-
cline in the broader S&P Financial index
and 1.9% increase in the S&P 500 index.
However, looking at just the first two
quarters of 2007, the S&P Life and Health
Insurance index had risen 9.9%, compared
with a 2.0% decline for the S&P Financial
index and a 6.0% gain for the S&P 500
during that same period. The decline in
share performance for the Life and Health
Insurance index is attributable to the mar-
ket’s concern regarding the credit quality
of the life and health insurance companies’
subprime holdings, in our view.
We are concerned that the market’s fo-
cus on subprime exposure specifically and
the housing market and credit quality in
general will cause headline risk which will
lead to excess volatility in share price per-
formance for the life and health insurance
companies. Our greater concern is that the
weakening housing market will spread to
the overall economy. A downturn in the
economy could result in a deterioration of
corporate credit. Insurance companies tend
to hold the bulk of the investment portfo-
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
lio in corporate bonds, so an acceleration
of corporate bond default rates, in our
view, could erode the value of their invest-
ment portfolios significantly.
Industry consolidation focuses on
scale and scope
Consolidation has been a continuing theme
in the life insurance industry. Over the past few
years, a handful of large insurers merged,
putting pressure on mid-tier players to seek out
partners in order to build additional economies
of scale, to better compete with their bigger
and more heavily capitalized rivals.
In June 2006, AXA announced plans to ac-
quire Winterthur Swiss Insurance Co. from
Credit Suisse Group for approximately 12.3
billion Swiss francs. The deal, which closed in
4
December 2006, should add some diversifica-
tion in Switzerland, and in Central and Eastern
Europe, where Winterthur has a strong pres-
ence. Standard & Poor’s expects cost savings
to come from overlapping operations. We
think AXA will benefit from Winterthur’s
network of agents and access to Credit Suisse
Group’s retail network.
On July 3, 2006, Protective Life and Annu-
ity Insurance Co. acquired Chase Insurance
Group, the insurance and annuity operations
unit of JPMorgan Chase & Co., in a deal val-
ued at $1.2 billion. Through a series of reinsur-
ance agreements entered into immediately after
the acquisition, approximately 42% of the
business of the Chase Insurance Group, exclud-
ing the variable annuity business, has been
reinsured to insurance subsidiaries of Wilton
Re Holdings Ltd. All of the variable annuity
business has been reinsured to Allmerica Finan-
cial Life Insurance and Annuity Co., a sub-
sidiary of The Goldman Sachs Group, Inc.
In order to better compete with larger rivals
(such as MetLife, Inc., Manulife Financial
Corp., and Prudential Financial, Inc.), Lincoln
National Corp. and Jefferson-Pilot Corp.
struck a merger deal in October 2005 worth
$7.6 billion. The deal, completed on April 3,
2006, created the fourth largest US life insurer,
with $151.3 billion in assets.
In January 2005, Citigroup Inc. exited
the insurance business, agreeing to sell its
life insurance and annuities business, Trav-
elers Life and Annuity Co., to MetLife for
$11.5 billion. That deal followed Man-
ulife’s $10.8 billion purchase of John Han-
cock Life Insurance Co. in 2003.
These deals have created more formidable
competitors in the life insurance industry and
have ushered in another wave of consolidation.
During 2005, there were 28 mergers in the life
and health insurance sector, with a total value
of $21.8 billion, according to data from finan-
cial services analyst SNL Financial. This com-
pares with 31 merger deals ($3.5 billion) in
2004 and 35 mergers ($14.5 billion) in 2003.
While generating economies of scale to
match their rivals’ larger geographical foot-
prints and product offerings is one rationale
for industry mergers, the current interest
rate environment provides another. With a
relatively flat yield curve, insurers have not
been able to profit much on the interest rate
spread between what they can earn in the
bond market and the interest rates that they
pay to buyers of their life insurance and an-
nuity products. As higher yielding securities
mature, insurers have been unable to re-
place them with anything other than lower-
yielding bonds. The cost synergies that
come from increased size will enable the
companies to better weather this challenging
operating environment.
M&A trend set to continue
Consolidation is likely to remain a theme in
the life and health insurance industry, as many
life insurers are awash with excess capital. Ac-
cording to industry trade group, the American
Council of Life Insurers (ACLI), the industry’s
risk-based capital ratio improved to 409% at
year-end 2005 from 390% at year-end 2004,
which has left some companies with billions
of dollars that could be put to use in corpo-
rate expansions.
The mergers between larger industry
players since 2003, and the more recent
combination of Jefferson-Pilot and Lincoln
National, may force a number of other life
insurance firms to use this excess capital to
seek out partners as a way to expand their
geographical coverage and product offer-
ings, in order to compete more effectively.
Standard & Poor’s also believes that some
broader financial services companies with
relatively small life insurance operations
could decide to exit these businesses and turn
their attention to their core businesses, lead-
ing to more M&A activity as these business-
es are divested.
An evolving regulatory environment
Regulation is a major part of the insur-
ance industry, and the group faces a number
of ongoing issues. A spate of investigations
at the state level into company practices —
including market timing, brokerage commis-
sions, and accounting irregularities — con-
tinues to hang over the industry. Additionally,
states are cracking down on annuity sales
practices that they feel are improper.
Ongoing regulatory investigations
The insurance industry came under fire
from a host of regulatory agencies starting in
2002. Although many of those investigations
and lawsuits finally have been settled or are
winding down, there could be more scrutiny in
store for the industry over the coming months.
The market-timing scandals that hit the
mutual fund industry in 2004 resulted in
increased scrutiny of the variable life and
annuity products sold by many life insurance
companies. So far, the fines for market-
timing activities have been imposed on
only a few companies. Still, other insurers
have increased their reserves to cover po-
tential fines and penalties as these investi-
gations continue. Companies that have
seen their fair share of scrutiny — includ-
ing Conseco Inc., UnumProvident Corp.,
Marsh & McLennan Cos. Inc., and Ameri-
can International Group Inc. — are hoping
that the worst of the scandals are over.
In August 2006, Prudential Equity Group
reached a settlement with several regulatory
agencies in connection with their investiga-
tions into market timing activities involving
the broker-dealer business at Prudential Secu-
rities. Many companies within the insurance
industry have changed their policies and
practices to avoid any hint of wrongdoing:
many of the large insurance brokers have
eliminated contingent commissions, equity-
indexed annuity providers are improving
suitability procedures, and many health in-
surers are correcting claims practices.
Annuities remain under scrutiny
State and federal regulators are investigating
the annuity market, with the government tak-
ing a hard look at the marketing of both vari-
able annuities and equity-indexed annuities.
◆ Variable annuities. A number of state
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
attorneys general have the marketing of vari-
able annuities in their crosshairs, as they go
after firms for marketing abuses. Attorneys
general Eliot L. Spitzer of New York and
Richard Blumenthal of Connecticut began in-
vestigating The Hartford Financial Services
Group in June 2005. In May 2006, Hartford
agreed to pay $20 million to settle charges
that it secretly paid brokers to steer pension
funds to the insurer’s annuities even though
they may not have been the best choice. Cali-
fornia, Kansas, Missouri, and New York also
are investigating the industry and looking at
new marketing and suitability rules.
Ultimately, the federal government could
get involved. In late 2004, the NASD (then
known as the National Association of Se-
curities Dealers), a private-sector provider
of financial regulatory services, asked the
5
 S&P Ratings Services View:
Credit quality will depend more on
risk management
The next 12 months present some sizable chal-
lenges for the US life insurance sector. Among the is-
sues the industry faces are the likelihood of
continued flatness in the yield curve, more mergers
and acquisitions, and a weak environment for sales
of individual life insurance products. In addition, risk
levels are rising in the credit markets, which have be-
gun to show some weakening, and will make the
coming year even more difficult for insurers.
Still, as of mid-August 2007, Standard & Poor’s
Rating Services’ outlook for the US life insurance
sector remained stable; that is, we expected pos-
itive and negative rating movements to be about
equal for the next six to 12 months. Our outlook
reflects company-specific circumstances rather than
macroeconomic or sector-wide factors.
Over the next three years, we expect revenue
growth in the ultra-competitive market for traditional
life insurance products (including whole, term, and
universal life) to be about 2% to 4%, in line with pro-
jected increases in US gross domestic product (GDP).
Furthermore, if the yield curve remains flat, higher
profits will be harder to achieve.
To offset these pressures, companies have been
seeking growth in dicey ways, mostly on the liability
side: creating higher-risk products; making acquisi-
tions that could strain operations, financially and/or
managerially; and engaging in more aggressive prac-
tices, such as underwriting with narrower built-in
profit margins.
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
We believe the default rate cycle for speculative-
grade bonds (those rated ‘BB+’ and below) has
troughed and that defaults will start increasing. In
addition, the life insurance industry continues to feel
Securities and Exchange Commission (SEC)
to approve a proposed regulation laying
down suitability standards. The life insur-
ance industry opposes such a plan, saying
that it is unfair to apply suitability stan-
dards to variable products only.
◆ Equity-indexed annuities. Regulators
also are probing suitability issues in rela-
tion to EIAs, which may eventually be la-
beled as securities. In August 2005, the
SEC asked a number of insurance compa-
nies for information on their top-selling
6
the ripples of the potential deterioration of sub-
prime mortgage-related assets (primarily residen-
tial mortgage-backed securities). Although insurers
may experience some credit losses in the coming
year, Standard & Poor’s believes that in general, the
industry can absorb the impact through the improve-
ments it has made since the last credit cycle down-
turn, including better risk management and higher
relative capitalization.
Flat interest rates could cap income
If long-term interest rates continue to stagnate at
current levels, life insurers’ 2007 income could be
constrained. The 10-year Treasury note has been rel-
atively flat since January 2007, with rates now about
4.6%, down from more than 5% in 2006. We expect
a low, relatively stable interest rate environment this
year, with 10-year Treasuries projected to yield 4.8%
by year-end. We are beginning to observe credit
spreads widening as a result of the subprime mort-
gage spillover effect, and we expect the yield curve’s
shape to stay relatively flat.
To compensate for these flat interest rates, large
insurers have been chasing yield, using alternative
instruments, especially private equity, for their in-
vestment strategies. For these insurers, strong divi-
dend distributions from private equity securities have
enhanced profitability. The overall rate of earnings
growth for life insurers this year will be less than
in 2006, however, due to the low interest rate en-
vironment and the likely decline in the level of pri-
vate equity distributions.
Is sales growth sustainable?
We expect a return to more historical growth
rates (in the low single digits) for individual life in-
surance in 2007. The 7% uptick seen in 2006 individ-
EIAs and any unregistered products that
may return less than 90% of total premi-
ums.
The SEC is scrutinizing the evolving
characteristics of these products and may
eventually move to have them registered
with the SEC in the same manner as other
securities, such as stocks. In August 2005,
the NASD issued a Notice to Members 05-
50, which recommended that broker-
dealers adopt special procedures in han-
dling equity-indexed annuities, due to un-
certainty over their classification.
 ual life sales may not be sustainable, as much of it
came from large sales of investor-owned life insur-
ance (IOLI), which is a new twist on life settlements.
Variable annuity growth, driven by living benefit
guarantees, has more than offset the impact of the
flat yield curve, which has plagued sales of fixed de-
ferred annuities compared with the certificates of
deposit with which they compete. Net flows in fixed
annuities have been negative because of higher sur-
renders resulting from the expiration of surrender
charges on multiyear guarantee annuities.
Is M&A the answer?
Some US life insurers are turning to mergers and
international expansion to satisfy shareholders’ de-
sire for greater financial returns. Historically, M&A
has been a high-risk strategy that often destroyed
shareholder value due to exorbitant purchase prices,
culture clashes between acquirer and acquiree, and
poor operational execution of the merger.
Recent transactions, however, have fared better. For
one thing, recent acquisition prices are more rational
than they were in the late 1990s. That’s partially be-
cause the marketplace is more transparent and due dili-
gence has improved, and partially because enterprise
risk management (ERM) is becoming more effective as
it increases in importance. Finally, more reasonable pur-
chase prices mean recent deals have involved less debt
financing than in the past.
Because the US life insurance sector remains
fragmented, Standard & Poor’s expects the pace of
consolidation to continue, with most M&A through
2007 and into 2008 coming from sales of large books
of business and divestiture of noncore books.
Enterprise risk management: the rating
differentiator
Standard & Poor’s continues to expand the num-
ber of enterprise risk management evaluations for
In much the same way that it is going af-
ter the marketing of variable annuities, the
NASD is cracking down on EIA marketing
abuses. The NASD is looking at the indus-
try’s aggressive efforts to move customers
into these instruments, even in cases where
EIAs may be unsuitable for them. Specifical-
ly, the NASD is concerned about firms that
have engaged in “switching” campaigns,
where customers were moved from variable
annuity-type instruments into EIAs, which
have higher commission rates and higher sur-
render fees.
life insurance companies. We see solid ERM disci-
pline as key to profitable growth with lower volatili-
ty, and we believe it will continue to be an important
rating differentiator for life insurers, especially as it
relates to product risk.
Improved ERM means most insurers are now bet-
ter prepared for the expected reversal in the credit
cycle. For instance, many have repositioned their
portfolios by taking advantage of the relative value of
corporate credit securities and by increasing their
holdings of higher-grade issues in anticipation of the
expected downgrade in corporate credit.
Factors that will determine ratings trends
Short-term trends in the US life insurance sec-
tor are relatively benign, so it is long-term trends
that are shaping the ratings environment. For the
remainder of 2007 and into 2008, upgrades and
downgrades are likely to be balanced. The deter-
mining factors in rating trends over the long term
will be the strength and sustainability of a compa-
ny’s competitive position and its operating perfor-
mance, especially with regard to using ERM
capabilities to manage emerging product risk and
the impending negative credit cycle.
Life insurers that can optimize advantages in dis-
tribution, product innovation, and risk management
will see their fortunes increase. Those that lack
these key strengths will see their competitive and
capitalization positions increasingly compromised. In
such a challenging environment, prudent ERM will be
all the more important to assuring long-term stabili-
ty and financial strength in the face of another diffi-
cult business cycle. ■
— Kevin Ahern
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
Credit Ratings Analyst, Life Insurance
TRIA extension passes without group life
A reauthorization and two-year extension of
the Terrorism Risk Insurance Act of 2002
(TRIA) was passed by Congress in December
2005, just before the original law was set to
expire. The original TRIA was passed after the
terrorist attacks of September 11, 2001, and
provided federal property-casualty reinsurance
for future terrorist events. Some proposed
versions of the December extension included
federal reinsurance for group life; this, how-
ever, was not in the original law and was
eventually excluded from the final version.
7
 The TRIA extension raised the property-
casualty industry’s retention level from 15% to
17.5% in 2006 and to 20% in 2007. The new
law also raised the program trigger from $5
million in insured losses to $50 million in in-
sured losses in 2006 and $100 million in 2007.
The Bush administration, along with
some prominent members of Congress, had
opposed the reauthorization of TRIA un-
less it was significantly scaled back. Some
in Congress argued that private industry —
not the US government — ultimately bears
the burden of insuring terrorist risks. Some
industry groups remain skeptical that
enough private capital could be raised to
cover terrorism risk, while others believe
that, in the wake of Hurricane Katrina in
September 2005, the reinsurance industry
has become much more risk-averse and
will not step up to provide protection with-
out some form of federal guarantees.
of taking unfair advantage of the infirm.
While the initial focus of the life settlement
segment was the terminally ill, the practice
has expanded and now includes purchases of
life insurance policies held by older individu-
als with longer life expectancies.
As the segment has evolved, new intermedi-
aries have developed as well. Viatical settle-
ment brokers negotiate among competing
settlement companies on behalf of the insured.
State regulation of the life settlement segment
has slowly evolved in parallel, following nu-
merous reports of unethical and fraudulent
practices within the segment. Many viatical set-
tlement providers also have been hurt by drug
treatment breakthroughs that have extended
the lifetimes of some terminally ill patients be-
yond initial assumptions. ■

Life settlement segment draws

scrutiny

On March 8, 2006, National Financial

Partners Corp. stated in its 10-K that it re-
ceived a subpoena from the office of New
York Attorney General Eliot Spitzer, “seek-
ing information regarding life settlement
transactions.” It was unclear, from the in-
formation given, the exact nature of the
subpoena. Although no direct action has
been taken on National Financial Partners
to date, on October 26, 2006, Spitzer filed
a civil complaint in State Supreme Court in
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY

Manhattan alleging that Coventry First

LLC, a provider of life settlements based in
Philadelphia, Pennsylvania, made secret
payments, dubbed “co-brokering fees,” to
life settlement brokers. The suit alleges
that, in exchange for these payments, the
brokers suppressed competitive bids from
other life settlement companies.
Life settlements, also known as viatical
settlements in some instances, have been a
slowly growing and evolving segment of the
US life insurance industry since the mid-
1980s. At that time, the spread of acquired
immunodeficiency syndrome (AIDS) helped
to create a market of terminally ill individu-
als with short life expectancies looking to
liquidate their life insurance policies before
death. This practice got a bad name in the
1990s, when a number of firms were accused

8
I NDUSTRY P ROFILE

Large, well-known companies

dominate a mature industry
The US life insurance industry is large, rela-
tively mature, and led by a number of big,
well-known companies. Based on data from
industry group the National Association of
Insurance Commissioners, via Highline Data
LLC, the life and health insurance industry’s
assets totaled $4.7 trillion at December 31,
2006, with a three-year compound annual
growth rate (CAGR) of 7.5%; the industry’s
capital and surplus reached $253 billion at
that date, with a three-year CAGR of 4.2%.
According to the data from the National
Association of Insurance Commissioners, to-
tal premiums and annuity considerations for
the life and health industry totaled $584 bil-
lion in 2006, or roughly 4.4% of US gross
domestic product, compared to 4.2% in 2005.
Life insurance in force in the United States at
year-end 2006 reached $34.3 trillion, up 6.0%
from $32.3 trillion a year earlier, and up
TOP 20 LIFE-HEALTH COMPANIES — 2006
(Ranked by year-end assets)
36.4% over the previous five years. (Life insur-
ance in force is the aggregate face value of in-
surers’ portfolios. Ongoing changes in the
universe of companies and certain restatements
mean that year-to-year numbers may not al-
ways be strictly comparable.)
We estimate that there were roughly one
thousand life insurance companies operating
in the United States during 2006. However,
the 20 largest life insurance companies ac-
counted for nearly 73% of the industry’s total
admitted assets as of year-end 2006. In addi-
tion, according to A.M. Best Co., a global
insurance-rating and information agency, the
10 largest life insurance groups accounted for
more than 51% of the industry’s admitted as-
sets as of year-end 2006. The country’s three
largest insurance groups — MetLife, Inc., Pru-
dential Financial, Inc., and American Interna-
tional Group, Inc. — accounted for more than
24% of total admitted assets.

COMPANY
ASSETS
(MIL. $) INDUSTRY TRENDS
1. Metropolitan Life 445,926

SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY

2. Prudential of America 368,595 Although the percentage of the US popu-
3. AIG Life 350,283 lation covered by life insurance has been
4. Hartford Life 238,475 trending downward overall since the 1970s,
5. Manulife 200,789
the face amount of life in force has grown
6. TIAA Group 186,565
7. AEGON USA 178,702
steadily. According to the American Council
8. New York Life 178,471 of Life Insurers (ACLI), an industry trade as-
9. ING USA Life 173,421 sociation, individual life insurance protection
10. AXA Financial Group 148,682 in the United States totaled $10.0 trillion at
11. Northwestern Mutual 145,121 the end of 2005, and it had grown at an av-
12. Lincoln Financial 144,166 erage annual rate of 5.5% since 1995. The
13. Principal Life Insurance 125,532
same study indicated that the average size of
14. MassMutual Financial Group 122,180
a new individual life policy increased to
15. Nationwide Life Group 110,869
16. Allstate Financial 91,004 $158,000 in 2005 up from $83,000 in 1995.
17. Pacific Life 87,629 The number of individual policies purchased
18. Ameriprise Financial Group 79,109 fell 1% in 2005. According to LIMRA Inter-
19. Jackson National Group 69,407 national, a trade group, 68% of US adults
20. Genworth Financial Group 69,049 are covered by life insurance, about the same
Source: A.M. Best. as 20 years ago. Furthermore, 44% of all US
households either don’t own life insurance
9
 TOP 20 WRITERS OF lives will bolster the need for greater retire-
INDIVIDUAL ANNUITIES — 2006 ment wealth. For more traditional life insur-
(Ranked by net premiums written)
ance products, rising longevity has helped to
PREMIUMS
COMPANY (MIL. $) reduce mortality rates, which can aid insurer
1. Metropolitan Group 16,537 profitability in these product lines.
2. Hartford Fire and Casualty 13,330
3. American International 12,508 Mortality tables revised
4. Lincoln National 11,370 In 2004, a new set of mortality tables,
5. Ameriprise Financial Group 10,346 CSO 2001, was adopted by a majority of
6. Allianz Insurance 10,219 states and became the prevailing mortality
7. Pacific Life Ins 8,713
tables used by the Internal Revenue Service
8. Jackson National 8,548
and the life insurance industry, replacing the
9. TIAA Group 7,201
10. Prudential of America 6,229 decades-old CSO 1980 set of tables. Mortali-
11. New York Life 6,213 ty rates under the new tables are expected to
12. ING America 5,812 improve for most population classes, general-
13. Nationwide Corporation 5,258 ly leading to lower reserving requirements. In
14. Allstate Insurance 5,170 addition, the maximum age under the tables
15. Genworth Financial Group 3,841 will extend from 100 years to 120 years.
16. AXA Financial 3,770 Through 2009, the National Association
17. AEGON USA 3,527 of Insurance Commissioners (NAIC), an or-
18. Aviva Group 2,836
ganization of insurance regulators, is allow-
19. John Hancock 2,579
ing insurance companies to implement the
20. Principal Financial 2,401
tables in states where it has been adopted.
Source: National Association of Insurance Commissioners,
via Highline Data, LLC The new mortality tables, which are used for
product reserving, apply only to new sales of
life insurance products. Given the lower re-
and believe they should, or do own life insur- serve requirements and changes in actuarial
ance and believe they need more. Among assumptions, the revisions could affect pre-
those that already own some life insurance, mium levels, product guarantees, cash values,
40% believe they do not have enough. and the need for reinsurance.

Changing demographics create new Baby boomers generate new demands...

opportunities
The forces shaping the life insurance in-
dustry today stem from a number of demo-
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
Longer life expectancies and concerns
about the financial safety net of Social Secu-
rity have given baby boomers a heightened
awareness of the need to save for retirement.

graphic changes, as well as from structural
changes within the financial services market-
place. According to the US Census Bureau,
the segment of the general population of re-
tirement age (aged 65 or older) is expected to
increase from 12.4% in 2000 to 13.0% in
2010, 16.3% in 2020, and 19.6% in 2030.
Conversely, while the segment of working-
aged people (ages 20 to 64) in the general
population is expected to increase from
59.0% in 2000 to 60.0% in 2010, the per-
centage is then projected to decrease sharply
to 57.2% in 2020 and 54.2% in 2030.
The overall aging of the population is
turning insurers’ attention gradually away
from income-protection financial products
towards retirement-oriented financial prod-
ucts. In addition, increasing longevity is also
having an influence on insurers, as longer
(Baby boomers are the approximately 77
million Americans born between 1946 and
1964.) Moreover, a shift in pension trends —
from defined benefit plans to defined contri-
bution plans, such as 401(k) plans — has
given many Americans a greater sense of fi-
nancial empowerment. Standard & Poor’s
believes variable annuities will also play an
important role in meeting the retirement
needs of baby boomers.
Many people now use technology, such as
the Internet, to filter the vast array of infor-
mation available to them as they plan their
financial futures. Furthermore, the break-
down of the barriers that once separated the
various sectors of the financial services in-
dustry is having an effect on consumer be-
havior. Banks and brokerage houses now sell
more annuities than do life insurance agents.

10
Life insurance agents, in turn, now sell
investment-oriented products, including
mutual funds. These factors have greatly
changed the selling process and probably will
continue to chip away at the old maxim that
“life insurance is sold, not bought.”
...and the industry responds
Although life insurance remains a mature,
relatively slow-growth business, new challenges
have sparked some dynamic changes in the in-
dustry. Many insurers have undertaken major
restructuring programs in an attempt to re-
shape their market image. A number of insur-
ers have launched aggressive variable annuity
sales programs and new wealth product guar-
antees in an effort to ramp up growth; this fol-
lows several years of declining equity markets
(following the technology bubble), which
dampened enthusiasm for equity-linked prod-
ucts, such as variable annuities and variable
life. Insurers also are refining their risk man-
agement, borrowing techniques that have been
popular in the banking industry for spread-
based products, such as fixed annuities.
While consumer acceptance for new prod-
uct guarantees, such as guaranteed minimum
withdrawal and income benefits, has been
encouraging, the new features are not with-
out their downsides. Most insurers use com-
plex market-hedging strategies for the
guarantees that can be difficult and expen-
sive to implement. Since the guarantees are
relatively new, most insurers do not have
much historical data on which to rely when
pricing these features. Furthermore, the lack
of historical data and an incomplete under-
standing of the risks associated with the
guarantees have resulted in a scarcity of rein-
surance for these new product features. In-
surers also must contend with recent and
pending accounting changes that require in-
surers to post reserves for new components
of their wealth products. Accordingly, Stan-
dard & Poor’s believes that insurers likely
will continue to reassess and reengineer their
wealth products to meet consumer needs and
new regulatory challenges.
Distribution channels have been
shifting
Faced with growing competition from other
financial services firms and the imperative to
boost revenue growth and profit margins,
many insurers have reevaluated their distribu-
tion channels and are revamping the way they
deliver products to consumers. In particular,
banks and other financial services firms have
generated an increasing share of insurance
product sales, especially for annuities.
Historically, life insurers were essentially
the sole source of life insurance products and
prospered by selling policies through an
agency system. Establishing an agency net-
work was costly, but necessary; the conven-
tional wisdom was that life insurance was
sold, not bought; and consumers had to be
educated on products and convinced that
they needed life insurance. Today, the repeal
of the Glass-Steagall Act has allowed other
financial services firms, such as banks and
brokerages, to offer insurance products.
Many have widespread and efficient distribu-
tion networks through their branch systems
or broker networks. Moreover, these distrib-
utors have recognized that most life insur-
ance is a commodity, and, as such, it must be
marketed primarily on price. Therefore,
those companies that deliver these products
to consumers in the most cost-effective man-
ner will thrive in the long term.
Work site marketing gaining importance
Work site marketing is the process where-
by an insurer offers its products or services
to employees at their place of work. Typical-
ly, these solicitations are made via the client
company’s Web site and/or through direct
mailings sent to employees, either at their
home or office. Direct, face-to-face solicita-
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
tion of employees is not typical in this kind
of situation; however, follow-up contacts —
either to administer a policy or conduct pre-
screening tests — are possible.
A broad array of products is offered, includ-
ing homeowners’ and auto insurance, dental
coverage, long-term care, and supplemental life
insurance. Savings and retirement products also
may be offered. According to a MetLife survey
commissioned in 2005, 40% of all employees
purchase more financial products (e.g., insur-
ance, mortgages, long-term care insurance, 529
plans, and securities) through the workplace
than outside of work.
For the client company, this kind of mar-
keting enables it to “offer” these choices to
its employees. There is an appearance of an
enhanced benefit package without added
benefit costs for the employer. By offering
11
 these services, the employer also is able to
help its employees to juggle work/life issues.
For the employee, there is an element of con-
venience with being able to purchase these
products and services at work, often without
sitting through a presentation by an insur-
ance sales representative. Moreover, there is
an implied endorsement being provided by
the client company that may give the em-
ployee an added sense of comfort. In essence,
some of the screening has already been done.
For insurance companies, this kind of
marketing is a very productive use of re-
sources. Marketing through this channel of-
fers an insurer the potential to achieve quick
economies of scale and, in some cases, a fa-
vorable mix of underwriting risk by insuring
(presumably) younger, healthier workers.
M&A activity focuses on scale and
scope
The US life insurance industry has been
in a period of consolidation since the
1990s. According to the ACLI, the number
of US life insurers operating in the United
States peaked at 2,343 in 1988. At year-
end 2005, there were only 1,119 US life in-
surers, down from 1,650 at the end of
1995 — a 10-year compound annual de-
cline of 3.8%. Standard & Poor’s believes
that, in the long term, consolidation in the
life insurance industry will continue to be
driven by the need to offset slowing rev-
enue growth, compete in a converging fi-
nancial services marketplace, cut costs, and
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
achieve economies of scale.
During 2005, a stable economic environ-
ment, stronger balance sheets, and an increased
appetite for growth helped fuel further merger
and acquisition (M&A) activity in the life in-
surance sector. According to data obtained
from SNL Securities, a financial services orga-
nization, 28 deals — valued at a total of $21.8
billion — were announced in the life insurance
sector in 2005. This contrasted sharply with
the M&A environment that existed in 2004,
when 31 deals valued at $3.5 billion were
announced. Results in 2005 were affected
by several large transactions, including
MetLife’s acquisition (in January 2005) of
Travelers Life & Annuity, valued at $11.5
billion, and Lincoln National Corp.’s ac-
quisition (in October 2005) of Jefferson-
Pilot, valued at $7.6 billion. In 2003, the
12
overall level of M&A activity included 35
deals valued at $14.5 billion. (For more infor-
mation on current M&A trends, see the “Cur-
rent Environment” section of this Survey.)
Standard & Poor’s expects this pace of
transactions to continue. The significant num-
ber of smaller life insurance companies pro-
vides numerous M&A candidates for the larger
insurance companies. Furthermore, many in-
surers are reassessing their current business
mix, with some choosing to sell off smaller
lines or underperforming books of business in
an effort to improve profits and focus on their
core competencies. Indeed, a fair amount of
M&A activity going forward may be in the
form of restructurings: companies selling off
parts of their operations that no longer fit with
their long-term strategic initiatives.
Standard & Poor’s believes that many life
insurance companies will acquire smaller
companies or blocks of businesses to im-
prove their scale and scope. Some firms are
growing almost entirely through acquisitions,
figuring that it is more cost-efficient to ac-
quire blocks of existing in-force policies than
to build critical mass through a start-up ef-
fort. Other buyers are looking to offset slow-
er growth in their core business with new
lines, such as retirement savings, to expand
distribution or gain a presence in the US
marketplace, or simply to acquire a franchise
or brand that increases their overall presence
in the marketplace.
The demutualization trend takes a
pause
Today, most of the major life insurance
carriers that were mutually owned have al-
ready demutualized (converted to stockhold-
er ownership). The few notable exceptions
include Massachusetts Mutual Life Insurance
Co., New York Life Insurance Co., and the
Northwestern Mutual Life Insurance Co.
Mutual insurance companies are owned by
their policyholders, so their main focus is to
provide low-cost policies and high-quality
service to their policyholder owners. In con-
trast, stockholder-owned insurance compa-
nies must juggle the often-conflicting
interests of their policyholder clients and
shareholder owners.
According to the ACLI, there were only
135 mutual life insurers doing business in the
United States during 2005, down from 228
in 1995. Furthermore, according to A.M.
Best’s Aggregates & Averages, mutual com-
panies accounted for only 16% of the life
insurance industry’s admitted assets in 2005,
down from 39% in 1995. Previously, two of
the largest life insurers in the United States —
Prudential Financial Inc. and MetLife — were
both mutual life insurers. MetLife demutual-
ized in April 2000, and Prudential completed
its demutualization in late December 2001.
Other notable demutualizations occurring
around the same time included John Han-
cock, Principal Financial Group Inc., and the
Phoenix Companies Inc.
Insurers involved in the last round of de-
mutualizations benefited from a rising stock
market that permitted companies to raise
capital at a favorable price, while also pro-
viding management with a publicly traded
stock that could be used for currency in fu-
ture acquisitions. Both prospects were partic-
ularly appealing to mutual insurers, who
faced new competitive threats and opportu-
nities following repeal of the Glass-Steagall
Act and believed that stock ownership would
allow them the flexibility to adapt and profit
in this new environment.
Of course, transformation to stockholder-
owned status does not happen overnight.
Prudential’s demutualization process took al-
most four years from the time the company
first announced its intention to convert to
the completion of its initial public stock of-
fering. Central to the process are regulatory
approvals and the arduous task of estimating
what the policyholders’ shares are worth.
Typically, policyholders are offered the op-
tion of exchanging their interest for cash,
stock in the new company, or an increased
level of insurance benefits.
M&A could spur sponsored demutualizations
Many of the remaining mutual insurers
are currently generating healthy levels of cap-
ital through their internal operations. With
the passage of the Sarbanes-Oxley Act of
2002, which requires additional and costly
overhead expenses for those mutual compa-
nies choosing to demutualize and issue a
public stock, Standard & Poor’s believes that
the next wave of demutualization could be
different and may take the form of spon-
sored demutualizations.
A sponsored demutualization is a process
of demutualization under which a mutual in-
surer converts to a stock company ownership
structure in order to be acquired by another
stockholder-owned company. For example,
in September 2002, shareholders of Nation-
wide Financial Services Inc., a diversified in-
surer and financial services firm based in
Columbus, Ohio, approved a plan under
which Nationwide would acquire Provident
Mutual Life Insurance Co., of Berwyn, Penn-
sylvania, for about $1.5 billion. As part of
the transaction, Provident simultaneously
converted to a stockholder-owned company.
Nationwide completed its sponsored demutu-
alization of Provident on October 1, 2002.
Despite its attractions, demutualizing is
not a panacea. While it affords the insurer
access to capital markets, demutualization
can lead to complications. After operating in
a mutual environment, where the goals of
the insurer are to serve only the needs of pol-
icyholders, many mutual insurance execu-
tives may be ill prepared for the heightened
scrutiny and proactive ownership base of a
stockholder-based company. In addition, the
stock market constantly grades the financial
performance of publicly owned insurers and
exacts a heavy toll from stock prices of com-
panies that do not perform up to par.
Capital market activity may slow
Life insurers have extremely large invest-
ment portfolios that can be affected by large-
scale bankruptcy or credit downgrades.
Despite the credit issues experienced by Ford
Motor Co. and General Motors Corp. in
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
2005 and 2006, most life insurers were re-
porting favorable bond credit trends and
renewed balance sheet strength. Moreover,
80% of all life companies rated by Stan-
dard & Poor’s had a stable outlook as of
May 2007. Standard & Poor’s believes that
most publicly traded life insurance compa-
nies will have little need to raise additional
funds in the capital markets in order to
maintain their financial strength ratings. In
fact, many life insurance companies have
been building excess capital. The average
risk-based capital (RBC) ratio increased to
409% in 2005, compared to 290% in 1997.
As calculated by the National Association of
Insurance Commissioners model law, the
RBC ratio measures the minimum amount of
capital an insurance company needs to pre-
vent triggering regulatory action.
13
 Standard & Poor’s expects many pub-
licly traded life insurance companies to
continue raising dividends and buying back
stock. Excess capital may also be used to
pay for strategic acquisitions. These com-
panies’ strong internal cash flow will also
support a prudent, measured approach to
growing the business internally. However,
as guarantee features for wealth products
continue to evolve, some life insurers may
decide to access the capital markets and
raise reserves for these guarantees, espe-
cially given the lack of adequate reinsur-
ance for many of these features.
Legislative changes impact wealth
products
On August 17, 2006, President Bush
signed the Pension Protection Act of 2006.
One of the key provisions of the new law is
that new employees are automatically en-
rolled in the company’s 401(k) plan, which
will help young employees get an early start
on saving for retirement. Standard & Poor’s
believes that the bill’s automatic provision
will increase 401(k) participation rates and
act as a boon to companies that provide re-
tirement benefits. In addition, the new law
allows annuities to be an investment option
in a company’s 401(k) plan. The bill also al-
lows investment providers to offer profes-
LIFE INSURANCE COMPANY DOLLAR — 2005*
INCOME
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
Net investment income 21.4%
Other income 6.9% Premiums 71.7%
EXPENSES
Other expenses 29.3%
Benefit payments 50.0%
Commissions 7.1%
Reserve additions 13.6%
*Latest available.
Source: A.M. Best Co.
14
sional investment advice to plan participants.
The bill further codifies the tax-free treat-
ment of death benefits and codifies insurance
industry “best practices” relating to the use
of company-owned life insurance (COLI).
COLI is an insurance product used by em-
ployers both to protect against the financial
cost of losing a key employee and to provide
means to fund employee and retiree benefits.
Life insurers often have sold survivor-
ship or “second-to-die” life insurance poli-
cies to be used in estate planning purposes
for the payment of estate taxes. In 2001,
President Bush signed into law the Eco-
nomic Growth and Tax Relief Reconcilia-
tion Act (EGTRRA), which, among other
things, increased federal tax deductions for
many retirement savings plans, including
individual retirement accounts (IRAs) and
401(k) plans, and reduced or repealed fed-
eral estate taxes from 2001 to 2010. As a
result of this new legislation, the demand
for survivorship policies may have de-
creased, and IRA and 401(k) accounts
could accept additional funds that other-
wise might be invested in tax-advantaged
wealth products offered by life insurers,
such as annuities.
In 2003, President Bush signed into law the
Jobs and Growth Tax Relief Reconciliation Act
(JGTRRA), which, among other things, cut the
federal income tax rate on stock dividends and
capital gains. This increased the attractiveness
of common stock for income-oriented in-
vestors, providing additional competition for
life insurance wealth products.
Federal regulation for life products
appears unlikely
For years, life insurance companies have
been lobbying Congress to give insurers the
option to be regulated at the federal level
rather than the current state regulatory
regime, whereby insurers must work with
regulators in each individual state where
they conduct business. Life insurers claim
that the state regulatory system is more
costly and time-consuming than a proposed
federal system, and that insurers often have
difficulty creating products that can be eas-
ily altered to meet the differing require-
ments of individual state regulators.
Furthermore, they say that banks, which
can be federally chartered and regulated,
do not have to deal with individual state
regulators — and thus have an unfair com-
petitive advantage. According to a study
conducted in 2004 by the ACLI and con-
sulting firm Computer Sciences Corp., a
single federal regulatory regime would re-
duce the cost of regulation by more than
$2.5 billion annually.
Standard & Poor’s believes that federal reg-
ulation for life insurers is unlikely in the near
future. One problem is that many property-
casualty insurance associations are lobbying
not for federal regulation, but for better state
regulation. These insurance associations con-
tend that, because property-casualty coverage
needs can vary from state to state, the current
regulatory system is more appropriate.
The National Association of Mutual In-
surance Companies, the National Association
of Professional Insurance Agents, and the In-
dependent Insurance Agents and Brokers of
America are among the associations that
oppose the plan. State regulators and con-
sumer groups also do not support a federal
regulatory framework.
HOW THE INDUSTRY OPERATES
The life insurance industry is being trans-
formed by ongoing competitive pressure from
banks and other financial intermediaries, as
well as by regulation changes. In the past, life
insurers provided only one thing: financial re-
muneration in the event of a policyholder’s
death. Today, they provide an array of financial
products and play an integral role in many
people’s financial planning, including services
in such complex areas as tax, retirement, and
estate planning.
In its simplest form, however, life insur-
ance is still a business of shared risk. Insurers
collect premiums from policyholders, invest
those premiums, and share some of that in-
come with policyholders (in the form of a
policy dividend or income from an annuity,
or through a policy’s cash value). Eventually,
insurers give policyholders some sort of fi-
nancial reimbursement, either upon the poli-
cyholder’s death or when a policy or an
annuity matures.
In the following section, we discuss various
kinds of ownership structures, assets, account-
ing methods, products, and other key informa-
tion pertinent to how the industry operates.
Ownership structures differ
Generally, a life insurance company’s own-
ership can take one of two basic forms: that of
a stock insurance company, or that of a mutual
insurance company. In addition, a company
can be structured as a hybrid, known as a mu-
tual holding company (MHC).
Stock insurance companies
Stock insurance companies, as their name
implies, are owned by shareholders. The
ownership capital of a stock insurance com-
pany is called shareholders’ equity. Stock in-
surance companies that are publicly held are
required to file quarterly financial reports
with the Securities and Exchange Commis-
sion (SEC). As a result, obtaining timely fi-
nancial information about these companies is
relatively easy.
Mutual insurance companies
A mutual insurance company is owned by
its policyholders, and its ownership capital is
called policyholders’ surplus. Because these
companies are not publicly held, they are not
required to disclose financial information to
the SEC. Although mutual insurers provide in-
formation to state regulators, and some distrib-
ute financial information to policyholders,
obtaining timely financial information about
mutual life insurers can be difficult for analysts
and other interested parties.
This used to create problems for those an-
alyzing the industry when mutual companies
dominated the upper echelons of the life in-
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
surance industry. However, in the wake of
numerous high-profile demutualizations —
including those by Metropolitan Life Insur-
ance Co., Nationwide Financial Services Inc.,
and Prudential Financial Inc. — the number
of large mutual companies has declined.
Only two of the top 10 US life insurers by ad-
mitted assets — TIAA Group and New York
Life Group — were mutual companies at the
end of 2005, according to the latest figures
from A.M. Best Co., a global insurance-rating
and information agency.
Mutual holding companies
In some instances, life insurers have
formed Mutual holding companies (MHCs)
to combine the benefits of a mutual owner-
ship with those of stock ownership. In this
case, the insurance operations are conducted
15
 DISTRIBUTION OF ASSETS — 2005*
US government bonds 3.3%
Other assets 8.5 %
Special revenue bonds 6.7%
Separate account
assets 33.0% Industrial bonds 28.1%
Mortgages & real estate 6.8%
Other bonds 11.2%
Preferred stocks 0.8% Common stocks 1.6%
*Latest available.
Source: A.M. Best Co.
by a stock company formally owned by the
holding company, which in turn remains in
control of the policyholders.
A benefit to this ownership structure is that
shares in the life insurance subsidiary can be
sold to the public to raise capital for expansion
or for use as currency for acquisitions. Howev-
er, such an arrangement may lead to conflicting
priorities as management seeks to please poli-
cyholders, who prefer that the company remain
fiscally sound and able to pay benefits, while
also trying to satisfy outside shareholders, who
prefer growth and dividends. As a result, many
insurers looking to demutualize have opted for
full demutualization, which is a more stream-
lined process than a partial demutualization.
Types of assets
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
There are three main ways of classifying
the assets owned by life insurance compa-
nies: admitted assets, separate account assets,
and troublesome assets.
Admitted assets
Admitted assets are those assets that state
insurance regulators include when determin-
ing an insurer’s financial condition or ability
to pay policyholders’ claims. Accordingly,
they are usually those with a high degree of
liquidity or that can be easily converted into
cash. Items such as office equipment and
past-due accounts receivable are examples of
assets that would be excluded from an insur-
er’s tally of admitted assets.
In order to maintain an adequate financial
condition, life insurers keep the vast majority
of their assets in higher-quality investments
16
with a high degree of liquidity. As a result,
invested assets constitute the largest portion
of an insurer’s asset base. Invested assets of
the life insurance industry equaled about
$2.9 trillion at December 31, 2005, or more
than 64% of total admitted assets. This fig-
ure showed a 3.6% increase from year-end
2004 invested assets and a 7.4% five-year
compound annual growth rate (CAGR). In
comparison, the five-year CAGR for admit-
ted assets was 6.6%.
Because life insurance products are generally
long-term in nature, most of life insurers’ in-
vested assets have longer maturities and are
higher yielding, such as multiyear bonds and
loans. Of the invested asset total at year-end
2005, bonds constituted 77%, followed by
mortgage loans and real estate (11%), contract
loans (4%), stock (3%), and cash and short-
term investments (2%). The remaining 3% was
in other kinds of investments.
Separate account assets
As their name implies, separate account as-
sets are held apart from other assets in the in-
surer’s investment portfolio. These accounts are
established by insurers primarily to fund cer-
tain annuity and investment-oriented life insur-
ance accounts where the policyholder or
annuity holder (annuitant) directs the invest-
ment process and bears most of the investment
risk. By segregating these assets, an insurer is
not restricted by state laws that mandate how
the assets in an insurer’s general account are
invested. As a result, a particular insurer’s
separate account portfolio may be over-
weighted with common stocks or real estate
compared with the overall industry standard.
Since they first came into existence in the
1960s (when life insurers used them to fund
pension accounts), separate account assets have
grown more rapidly than the overall life insur-
ance industry’s total admitted assets. According
to statistics from A.M. Best, the CAGR for life
insurers’ separate account assets was 17.7%
for the period from 1985 to 1995, versus
9.7% for total admitted assets. However, with
the bear stock market from 2001 to 2003, the
five-year CAGR for separate accounts from
1999 to 2003 slowed to 5.0%. For insurers,
there has been a tradeoff for the rapid growth
of separate account products: namely, a nar-
rowing of profit margins, because most of the
upside potential from these investments is
passed along to the consumer.
 At December 31, 2005, separate account
assets for the life insurers in the A.M. Best
study totaled $1.5 trillion, or 33% of admit-
ted assets. The five-year CAGR for separate
account assets was 5.2% through 2005. Sep-
arate account assets grew at a three-year
CAGR of 15.3% through year-end 2005. At
year-end 2005, common stocks represented
81% of separate account assets.
Troublesome assets
Troublesome assets are defined as invested
assets that decline in value while in the own-
ership of an insurance company. For exam-
ple, in the wake of the credit downgrades in
the auto industry, there was a rise in fixed-
income troublesome assets. An increase in
troublesome assets leads to an increase in
write-downs of investment portfolios.
Mortgage loans and other real estate
holdings have been among the most trouble-
some asset classes for life insurers in the past.
In the early and mid-1980s, many life insur-
ance companies increased their real estate
holdings, spurred by the need to improve
their investment returns in a declining inter-
est rate environment. When the commercial
real estate market imploded in the late
1980s, however, many insurance companies
were stuck holding nonperforming assets.
After reaching a peak of more than 27% of
invested assets at year-end 1986, real estate and
mortgage holdings trended downward as a per-
centage of invested assets, as insurers sought to
reduce their holdings of this once-troubled as-
set class. More favorable real estate market
conditions, which gained traction when the
Federal Reserve started cutting interest rates in
2001, induced a number of companies to in-
crease their real estate holdings. However, the
CHANGE IN INDUSTRY CAPITAL AND SURPLUS
(US stock life/health insurance companies, in billions of dollars)
2001 2002 2003
Net operating income 12.39 15.87 27.08
Realized capital gain/loss (4.38) (13.45) (4.06)
Stockholder dividends (21.06) (12.81) (11.60)
Retained earnings (13.06) (10.40) 11.42
Change in unrealized
capital gain/loss (7.51) (6.14) 5.23
Change in reserves and other 0.97 9.59 (3.81)
Capital contributions 17.70 12.95 4.75
Change in capital and surplus (1.90) 6.00 17.59
*Latest available.
Source: A.M. Best.
recent rise of interest rates and the threat of a
difficult real estate environment have led com-
panies to again reduce their exposure. As of
year-end 2005, real estate and mortgage hold-
ings totaled 10.6% of total invested assets.
Mortgage and real estate portfolios can
vary widely among insurers; many life insur-
ers hold little or no real estate, while others
are laden with it. Typically, the firms with
the largest holdings (on an absolute basis
and in relation to their capital bases) have
tended to be those with sizable pension- or
annuity-related books of business.
Finding funds for investment
Insurers derive funds for investment from
four primary sources: policy reserves, the lia-
bility for unearned premiums and deposited
funds, separate account liabilities, and capi-
tal and surplus. Policy reserves, which are
the funds set aside to pay future claims, are
by far the largest liability on an insurer’s
books; for the companies in the A.M. Best
survey, these reserves totaled slightly more
than $2.0 trillion at December 31, 2005, or
about 49% of the industry’s total liabilities
of roughly $4.2 trillion.
At year-end 2005, the liability for sepa-
rate account funds totaled $1.5 trillion, or
about 35% of total liabilities. The liability
for deposit-type contracts (such as annuities)
equaled $325 billion, or 7.7% of life insur-
ers’ total liabilities. Capital and surplus at
year-end 2005 totaled $250 billion.
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
Loss reserves and profitability
Loss reserves have a significant impact
on an insurer’s financial results. A life in-
surer’s prosperity depends largely on its
ability to quantify the ultimate cost of
claims from the risks that it assumes. If an
insurer’s reserve levels are too high — that
2004 2005* is, if it sets aside too much money to pay
28.01 28.35 future claims — profits will appear lower
0.57 2.10 than they actually are. In response, an in-
(15.22) (23.64) surer may raise its premium rates unneces-
13.36 6.81 sarily if it believes current levels are not high
enough to cover losses. However, an insurer
2.81 (0.45)
that initially sets its reserves too high can
(11.89) (3.04)
generally “release” these extra reserves to
8.47 (0.12)
12.75 3.19
profits when it becomes certain that the level
of reserves should be lowered.
Conversely, if reserves are too low, profits
will appear inflated, and an insurer may be
17
 inclined to lower its rates. Moreover, inaccu-
rate reserve levels ultimately will have to be
adjusted once losses develop. These account-
ing adjustments may make the insurer’s fi-
nancial position seem erratic and unstable.
Reserving for losses and setting premium lev-
els involve estimating the ultimate value of
future claims. This actuarial process, howev-
er, is extremely difficult. Forecasts of future
losses are subject to a number of variables,
including but not limited to mortality rates,
real economic growth, inflation, interest
rates, lapse rates, and sociopolitical events,
including judicial rulings.
Two accounting methods
Many insurers report their financial re-
sults using two kinds of accounting princi-
ples. For results submitted to regulators,
insurers use statutory accounting principles
(SAP). For results given to investors, they use
generally accepted accounting principles
(GAAP). However, many financial analysts
also use SAP financial statements when eval-
uating an insurer.
The primary difference between the two
accounting systems lies in a concept known
as the matching principle. Under GAAP, ex-
penses are charged (matched) to the period
in which they were used to generate revenues
and provide services, also known as accrual-
based accounting. Under SAP, expenses are
recognized as incurred, also known as cash-
based accounting.
This means that, under SAP, expenses as-
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
sociated with writing an insurance policy —
such as commissions and other underwriting
expenses — are immediately expensed and
deducted from income. Under GAAP, these
same costs are treated as assets (referred to
as a policy’s deferred acquisition costs, or
DAC) and are amortized as expenses over
the insurance policy’s life, which is the period
over which the insurer provides its services
to the policyholder. Since a policyholder can
choose to terminate a policy at a future date,
the insurer must estimate (for DAC amorti-
zation purposes) lapse rates and the lifetime
of a policy. Changes in these estimates can
cause an insurer to accelerate or decelerate
DAC amortization over time.
Hence, under the more conservative SAP
method, which emphasizes a company’s solven-
cy, income and surplus tend to be lower than
18
under the GAAP method, which emphasizes a
firm’s ongoing profitability. Because regulators
are primarily concerned with an insurer’s sol-
vency and its concurrent ability to meet policy-
holder obligations, they choose to scrutinize a
company’s financial statements using SAP. In-
vestors, however, are usually more interested in
an insurer’s ability to earn a profit and tend to
put more emphasis on an insurer’s financials
using GAAP figures.
Types of products
Available with a variety of coverage op-
tions and terms, life insurance products are
becoming increasingly complex. Still, the
general kinds of products that follow consti-
tute the bulk of life insurance sales.
Term insurance
As its name implies, term life insurance
is life insurance that remains in effect for a
set period, or term, such as five or 10
years. If the policyholder survives during
that period, the policy coverage ceases.
Term life insurance does not build up any
cash or forfeiture values. Consequently, it
is usually the least expensive kind of life
insurance coverage available.
According to A.M. Best, term life insur-
ance accounted for approximately 43% of all
life insurance issued in 2005, or about $1.3
trillion of the more than $3.0 trillion of poli-
cies issued that year. That represented a
3.0% decrease from the level in 2004 and a
five-year CAGR of 3.7%. Of the $33 trillion
of insurance in force at the end of 2005,
term life insurance accounted for 48%.
Whole life
Whole life insurance policies combine a
death benefit with a savings plan. For tradi-
tional whole life insurance, premium levels re-
main constant over the policy lifetime. As a
result, a policyholder effectively overpays dur-
ing the early years of his or her coverage, when
the risk of death is relatively low. The interest
earned on that overpayment goes to build the
policy’s cash value, against which money may
be borrowed. Most whole life insurance poli-
cies can be surrendered before maturity or the
payment of the death benefit for a lump sum
known as the surrender value.
A variant of whole life insurance, called
endowment insurance, provides a death ben-
efit that also can be paid out at the policy’s
maturity. The cash accumulation is payable
either to the policyholder at the maturity
date or to the beneficiaries upon the policy-
holder’s death. At the end of 2005, whole life
and endowment insurance accounted for
23% of all insurance in force.
Over time, alternative investment prod-
ucts have sorely tested the life insurance in-
dustry’s traditional whole life product
offerings. During the late 1970s and early
1980s, high inflation and rising interest
rates prompted customers to terminate
their whole life policies in droves. At that
time, conventional whole life insurance
policies yielded a mere 5% on their savings
feature, while new money market funds
were paying upward of 15% interest. This
discrepancy led insurance buyers to shift to
less expensive (and, for the insurer, lower
margin) term insurance and to invest their
savings elsewhere at higher rates.
To stem the tide of policy terminations in
the wake of rising interest rates, underwriters
scrambled to devise new ways to attract and
keep customers’ whole life insurance dollars.
One result was the creation of two new
kinds of whole life insurance policies: univer-
sal life and variable life, which offered poli-
cyholders much more control over the
savings features of the policy.
◆ Universal life. Introduced in 1979, uni-
versal life insurance policies combined a term
life insurance policy with a savings feature
that offered interest rates comparable to
amount of his or her premium, the size of the
death benefit, and the policy’s investment por-
tion. In addition, the policy’s cash value could
be used to subsidize premium payments.
Universal life also provides the same federal
income tax advantages as whole life: the death
benefit is exempt from income taxes. If the pol-
icy is surrendered, the cash value of the “inside
build-up” is taxable only if that build-up and
the dividends used to buy more coverage ex-
ceed the total amount paid in premiums.
◆ Variable life. This relatively recent
product innovation is even more investment-
oriented than universal life insurance. Vari-
able life lets the policyholder choose among
alternative investment vehicles, including
stock funds, corporate or government bond
funds, and money market accounts. These
policies typically offer fixed premiums and a
minimum death benefit.
Variable life policies entail some risk to the
policyholder, because the face value of the in-
vestment portfolio fluctuates with the select-
ed fund’s performance. Moreover, unlike
universal life insurance, variable life policies
do not guarantee a minimum return on the
inside build-up of cash value.
◆ Universal variable life. This product
combines the premium flexibility of universal
life with a death benefit that changes accord-
ing to the investment performance of the
underlying assets.
Group life

SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY

those of money market accounts. Universal life In contrast to the individually issued
insurance policies let a policyholder vary the policies just discussed (individual life),

OPERATING DATA OF US LIFE INSURANCE COMPANIES

LIFE INSURANCE IN FORCE, PREMIUMS, NET RETURN
IN BILLIONS OF $ IN MILLIONS OF $ INVESTMENT ON
RESERVES INCOME REVENUES
YEAR ORDINARY GROUP †TOTAL LIFE ANNUITIES HEALTH ‡TOTAL (MIL. $) (MIL. $) (%)
*2005 23,206 9,248 32,703 142,209 275,731 117,226 533,432 1,930,515 159,163 4.50
2004 22,066 8,713 31,037 139,671 275,205 125,131 537,308 1,853,267 151,809 4.40
2003 20,349 8,436 29,049 126,771 267,213 114,803 505,885 1,745,567 147,693 4.40
2002 18,234 8,038 26,556 133,869 268,437 105,261 506,569 1,582,328 140,395 2.85
2001 16,920 7,799 25,018 124,771 250,374 97,444 472,730 1,439,945 138,243 2.41
2000 15,566 7,232 23,138 131,533 303,823 100,189 548,208 1,545,032 137,260 2.95
1999 14,092 6,897 21,314 120,156 270,184 93,981 494,118 1,496,675 131,481 2.82
1998 12,645 6,609 19,583 125,940 229,471 91,749 453,498 1,456,797 129,482 2.46
1997 11,052 5,994 17,380 113,525 197,650 85,708 401,058 1,409,894 127,685 3.46
1996 10,020 5,536 15,881 104,680 178,299 83,814 370,138 1,373,248 121,268 3.12
†Includes industrial and credit. ‡Includes miscellaneous premium receipts. *Latest available.
Source: A.M. Best Co.

19
 group life insurance coverage is provided
under a group or association program that
provides each plan participant with life in-
surance by issuing a certificate to a master
plan contract. Corporations provide most
of these plans to their employees, but spon-
sors can also include associations, fraterni-
ties, and other such organizations. Group
life policies usually consist of annual re-
newable term policies.
According to A.M. Best, issuances of
group life insurance sales equaled roughly
$1.0 trillion in 2005, or approximately 35%
of all new life insurance issued that year.
This represented a 5.6% decrease from 2004
and a five-year CAGR of 2.4%.
Other policies
This category comprises credit life insur-
ance and industrial life insurance. Credit
life insurance is term life insurance de-
signed to cover the repayment of a loan,
installment purchase, or other financial
obligation. Industrial life insurance is a rel-
atively low-value form of life insurance
whereby the premium is collected by the
salesperson at the home of the insured on a
weekly or monthly basis. This kind of life
insurance is also known as home service
life insurance.
Together, issuances of credit life insurance
and industrial life insurance totaled approxi-
mately $133 billion in 2005, or roughly
4.5% of all issuances that year, and account-
ed for roughly 1% of insurance in force at
year-end 2005. This was down from a level
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
of slightly under 2% of all in-force policies
at year-end 1998, according to A.M. Best.
Annuities
An annuity is an insurance contract that
provides for a series of payments to the an-
nuitant. These payments may begin at once
(as is the case with an immediate annuity) or
at some future date (with a deferred annu-
ity). During the time before the commence-
ment of benefit payments (referred to as the
accumulation period), money deposited in an
annuity earns income on a tax-deferred basis.
Flexible-premium deferred annuities give
the contract holder the option of making pe-
riodic (usually monthly) premium payments
during the accumulation period. This is in
contrast to single-premium annuities, in
which premiums are paid in one lump sum at
20
the outset. Single-premium annuities are
available with either an immediate or a de-
ferred payout option. After withdrawals be-
gin, the remaining balance continues to be
tax-deferred; money that is paid out — or
annuitized — is taxed.
In exchange for tax deferment features of
annuities, investors give up liquidity, or easy
access to their money. Surrender charges, ex-
penses, and certain tax penalties ensue if in-
vestors withdraw funds before an annuity
matures. Nevertheless, the tax-deferred
build-up of assets has been a primary attrac-
tion for investors. In addition, while in-
vestors can contribute only limited amounts
to tax-deferred individual retirement ac-
counts such as 401(k) plans and the like,
they can put as much as they want into an-
nuities. For insurers, selling annuities has
been a profitable undertaking in recent years.
Annuities can be structured in a variety of
ways. Fixed annuities offer a guaranteed in-
terest rate that will be paid on the principal
amount deposited in the annuity. Under a
variable annuity, in contrast, the level of in-
vestment income is not guaranteed; it can
fluctuate depending on the investment results
and income earned on assets that are held in
a separate account for the annuitants’ bene-
fit. A hybrid product, known as an equity-
indexed annuity (EIA), provides a minimum
guaranteed rate of return plus a rate linked
to a market index, combining the positive
features of both fixed and variable annuities.
Due to their investment nature, annuities
must compete against other financial prod-
ucts for consumer savings dollars. In the
fixed annuity marketplace, insurers primarily
compete based on credited interest rates,
which is the rate they are willing to pay on
the principal deposited in an annuity. During
periods of recession with declining interest
rates, fixed annuities can allow investors to
“lock in” a set interest rate. For example,
during the early 1990s, declining interest
rates helped to propel sales of fixed annu-
ities, creating a boon for insurers.
However, when the economy begins to re-
cover from a recession and interest rates stabi-
lize, investor interest often turns to variable
annuities, which permit underlying stock mar-
ket investments. For example, individual vari-
able annuity premiums jumped to almost $17
billion in 1992, from just less than $9 billion in
1991, according to data obtained from A.M.
Best. After peaking at $31 billion in 1993, vari-
able annuity premiums began to slip as uncer-
tain equity market conditions forced investors
back into safer investment havens.
According to the National Association for
Variable Annuities (NAVA), an insurance re-
search and statistical gathering firm, total
sales of variable annuities rose more than
17% in 2006, to $154.9 billion, driven by a
modest stock market growth and guaranteed
minimum benefit features, such as guaran-
teed minimum income benefits (GMIB) and
guaranteed minimum withdrawal benefits
(GMWB). Conversely, sales of fixed annu-
ities, including EIAs, declined in 2005, due
primarily to the interest rate environment
that prevailed during 2005, especially in
the fourth quarter. According to National
Underwriter, an industry publication, in-
dexed annuity sales increased to $27.3 bil-
lion in 2005.
Stable value products
Stable value investments are fixed income
investments that guarantee to maintain the val-
ue of principal and all accumulated interest. A
number of insurance companies provide group
annuity contracts, also called guaranteed in-
vestment contracts (GICs), to managers of sta-
ble value funds, which in turn are often offered
as investment choices for 401(k) and other re-
tirement plan participants who wish to earn an
acceptable return on their investments without
accepting market risk.
According to data from the Stable Value
Investment Association, a leading authority
on retirement investing, stable value invest-
ment options have been offered in two-thirds
of employee-directed 401(k) plans. Further-
more, for plans offering a stable value
choice, stable value assets represented $397
billion (roughly 33%) of defined contribu-
tion assets, as of December 31, 2005.
Long-term care and disability insurance
Long-term care (LTC) insurance pays for
services and support for policyholders who
require assistance to perform certain daily
living activities due to illness, injury, or old
age. Insurers offer LTC insurance on both in-
dividual and group bases. The cost for such
care is becoming increasingly expensive. Ac-
cording to a study by MetLife, the average
annual cost of a private room in a nursing
home was $75,190 in 2006, and the Ameri-
can Council of Life Insurers (ACLI) predicts
this cost will escalate to more than $200,000
by 2030.
Disability income insurance helps an em-
ployee who is unable to work, due to acci-
dent or illness, to maintain a level of income.
Policies often can replace 50% to 70% of the
employee’s pre-disability income. Insurers
also offer disability insurance on both indi-
vidual and group bases. According to the
National Compensation Survey, March 2006
from the Bureau of Labor Statistics, 37% of
employees in private industry participated in
short-term disability benefits and 29% par-
ticipated in long-term benefits.
Distribution
Life insurers use a variety of distribution
channels, including the agency system, home
service, and direct response. Following the
rapid growth in annuity markets in the
1990s, a major proportion of life insurance
industry sales came to be conducted by
banks and brokerage firms. In addition, the
Internet represents a promising and growing
distribution outlet.
◆ The agency system. An agent acts as the
insurer’s representative in negotiating, selling,
and servicing life insurance policies. Agents
may be either independent (acting as contrac-
tors and offering products from many insurers)
or captive (employees of a particular insurer).
Some insurers use managing general agents
(MGAs), who have broader powers than regu-
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
lar agents. In addition to selling policies, the
MGA may be involved in marketing, under-
writing policies, and supervising other agents.
◆ Home service life insurance. Also called
industrial life insurance, home service repre-
sents only a small portion of the industry’s
business. Home service involves actually col-
lecting premiums for policies, either on a
weekly or monthly basis, at the home of the
insured. This kind of service is costly and not
very efficient.
◆ Direct response. Of the various chan-
nels, the direct-response method is the most
cost-effective. Under such a system, employ-
ees of the insurance company deal directly
with potential clients through telephone so-
licitations, mass mailings, or television adver-
21
 tisements. Some insurers have turned to di-
rect-response distribution channels to make
their distribution systems more cost-effective.
◆ Internet sales. Numerous insurers have
turned to the Internet to market their prod-
ucts. Virtually every insurer has a Web site,
from which a consumer may access product
information, learn how to file a claim, or
find the name of an agent. So far, alternative
distribution channels such as direct response
and the Internet have been used mostly for
the sale of term life insurance. They have had
some degree of success with that product be-
cause term life insurance is fairly simple to
understand and the most commodity-like.
The pros and cons
While each sales channel has advantages
and disadvantages, the tradeoff for an in-
surance company is cost versus control. A
direct-selling system may be expensive to
establish and operate, but it gives the in-
surer control over the distribution process.
Conversely, the independent agency system
can reduce the amount of control an insur-
er has over every aspect of the distribution
system, but it usually offers an insurer an
established network through which it can
distribute its products. Many factors deter-
mine which kind of distribution method is
best to use.
In addition to the resources an insurer
must devote to distribution, its product mix
likely will have a major influence on the kind
of distribution it employs. For example, a life
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
insurer that sells simple, low-value term in-
surance could easily offer its products
through various direct-response channels.
In contrast, a company with investment-
oriented products may need to use a full-
service agency sales force.
Regulating the industry
Regulation of the life insurance industry is
done on a state-by-state basis. Each of the 50
states and the District of Columbia has an
elected insurance commissioner. Each state
grants operating licenses to insurers, giving
them permission (or “admitting” them) to con-
duct business within its borders. State regula-
tors serve three primary functions. First, they
monitor the financial condition and claims-
paying ability of companies operating in their
22
state. Second, they serve as consumer watch-
dogs, ensuring that policyholders are not over-
charged, mistreated, or discriminated against.
Finally, regulators try to ensure that essential
coverage is readily available.
States also approve insurance products
and license qualified agents to sell them.
Insurance agents, including individuals
who work for banks or brokerage firms,
must pass a comprehensive state test to be
licensed to sell insurance. In most states,
agents must pursue continuing education in
order to maintain their licenses.
The activities of the insurance commission-
ers are coordinated under a national organiza-
tion, the National Association of Insurance
Commissioners (NAIC), which was founded in
1871 as the National Convention of Insurance
Commissioners. One of the organization’s first
actions was to formulate uniform accounting
procedures. Today, one of the NAIC’s main
functions is to develop and improve insurance
reporting and accounting standards and prac-
tices in an attempt to enhance state regulators’
knowledge of the financial condition of the in-
surers in their state.
Every year, insurance companies are re-
quired to file a set of financial statements
with the regulators in each state in which
they operate. These records, called annual
statements, outline (in statutory accounting
terms) a company’s profit-and-loss position
and its overall financial condition. More-
over, all 50 states have laws requiring sol-
vent life insurance companies to pay
assessments to state guaranty associations.
These guaranty associations, or guaranty
funds, are established to ensure that policy-
holder claims are paid in the event an in-
surer becomes insolvent.
To comply with the Financial Services
Modernization Act of 1999, which called
for a reform of the inefficient state-by-state
system, the NAIC has approved a uniform
product filing form and is working on a na-
tional agent-licensing plan. Although a
national regulatory body ultimately may be
established — many have been calling for
just such a group for most of the last
decade — nothing has happened yet.
Other forms of regulation and control
govern the insurance industry. For example,
publicly held companies (i.e., those that issue
shares of stock) are also subject to regulation
by the SEC.
KEY INDUSTRY RATIOS
AND STATISTICS
With the exception of the risk-based
capital (RBC) ratio, the following ratios
are derived from the statistics available in
insurance research firm A.M. Best Co.’s an-
nual publication, Aggregates and Averages.
For purposes of formulating industrywide
benchmarks, Standard & Poor’s defines the
industry as the universe of companies that
report financial results to A.M. Best. In
2005, the latest full year for which com-
prehensive statistics are available, there
were 1,119 such stock and mutual life in-
surance companies in the United States.

Net investment yield. This ratio mea-
sures performance of the investment port-
folio. It is typically calculated as pretax net
investment income divided by average in-
vested assets, including cash. Realized and
unrealized capital gains are excluded from
the calculation. Typically, investment yields
range from less than 4% to almost 10%,
depending on the credit quality, maturity,
and mix of invested assets in an insurer’s
portfolio. For the industry as a whole, the
net investment yield was 5.78% in 2005,
versus 5.82% in 2004 and 6.12% in 2003.

Return on assets (ROA). Calculated
by dividing net income by average total as-
sets, ROA is a measure of profitability over
all sources of funds. The ROA for most life
insurers typically ranges from 0.4% to
0.9%. In 2005, the industrywide average,
calculated as statutory net operating in-
come over the average of the prior two
years’ admitted assets, was 0.76%, down
from 0.83% in the prior year.

Return on equity (ROE). Another
measure of profitability, ROE compares
earnings to the level of equity capital sup-
porting those earnings. The ROE (capital
and surplus) for most life insurers typically
averages between 10% and 15%; the ROE
of a stock life insurer is usually in the
range of 12% to 15%, while that of a mu-
tual life insurer tends to be lower, averag-
ing between 9% and 12%.
Life insurers often face a trade-off be-
tween ROE and financial strength. Compa-
nies seeking additional equity capital — in
order to increase their financial strength or
claims-paying ability, which is important to
consumers — often have lower ROEs, since
the additional capital is largely invested in
high-quality bonds that generally have an
after-tax return in the single-digit range.
To calculate the ROE for the entire life
insurance industry (which includes mutual
life insurance companies), net operating in-
come is divided by the average of the prior
two years’ capital and surplus. In 2005, the
ROE for the total industry was 13.5%,
down from 14.4% in 2004.

Return on revenue (ROR). Designed to
measure earnings performance relative to the
size of an insurer’s book of business, ROR is
calculated as net income divided by total rev-
enue (premium income plus net investment
income). The ROR for most life insurers typ-
ically ranges from 2% to 5%. In 2004, the
industrywide average, calculated as statutory
net operating gain over total statutory rev-
enue, was 4.5%, up from 4.4% in 2003.

Risk-based capital (RBC) ratio. This
ratio compares the amount of capital sup-
porting an insurer with the theoretical
amount of capital needed to act as a buffer
in order to maintain the insurer’s claims-
paying ability. The insurer’s capital is often
determined under statutory accounting; the
theoretical amount of capital is model-
specific and accounts for numerous risks
facing an insurer, such as investment, un-
derwriting, and operational risks, as well
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
as the covariance among these risks.
The National Association of Insurance
Commissioners (NAIC), an organization of
US insurance regulators, and ratings firms
develop and use their own RBC models to
help in assessing an insurer’s financial
strength. Under the NAIC model, the in-
dustry average generally varies between
250% and 350%; at the end of 2005, it
was in excess of 400%, the highest level
seen since life insurers began reporting
risk-based capital.
HOW TO ANALYZE A LIFE INSURER
Three primary factors are important to
consider when analyzing a life insurer: prof-
itability (its ability to make money), liquidity
23
 (its ability to convert assets into cash to pay
policyholder obligations), and leverage (the
extent to which the insurer uses its capital to
produce business).
These three points should be considered
against a backdrop of two important macro-
economic indicators that affect life insurance
sales: interest rates and demographics. We
discuss those two indicators first.
Macroeconomic indicators
◆ Interest rates. Changes in the direc-
tion of interest rates affect life insurers on
a number of fronts. First, in a period of de-
clining interest rates, growth in net invest-
ment income — an important revenue
source for a life insurer — will slow, as
yields on insurers’ bond portfolios slide.
However, falling interest rates also increase
the value of the underlying assets (usually
fixed-income securities) that produce the
investment income.
In addition, as the life insurance industry
has evolved into a more investment-oriented
business, life insurers must compete with other
financial institutions (such as banks and bro-
kerage houses) for consumers’ savings dollars.
One primary way that they compete is on the
yield offered on their respective products. For
example, an insurer selling a whole life or vari-
able life policy may have to compete with
banks and the interest rates that they pay on
money market funds or certificates of deposit.
Finally, changes in interest rates affect in-
surers differently, depending on their busi-
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
ness mix. There is a difference between the
cash flows from a company’s interest-earning
assets and the cash flows related to its liabili-
ties that mature or are repriced within a spe-
cific time frame. Consequently, many life
insurers employ a variety of hedging tech-
niques, such as matching asset and liability
durations, to help insulate themselves from
changes in interest rates.
◆ Demographics. The well-publicized aging
of the US baby boom generation (those born
between 1946 and 1964) is affecting demand
for life insurance products. According to the
US Census Bureau, there will be about 81 mil-
lion baby boomers in 2010, compared with 62
million people aged 45 to 64 in 2000 — a pro-
jected increase of approximately 30% in the
population in that age range.
24
As the baby boomers — who are now in
their forties and fifties, prime earning and
saving years — plan for their retirement,
they do so with a much lower level of faith
in the Social Security system, coupled with
an outlook for increasing life expectancies
and higher healthcare costs. As a result,
many are turning to life insurers to provide
not only traditional death-benefit types of
life insurance, but also savings-oriented life
insurance products and annuities to help
fatten their coffers for retirement.
Conversely, the Census Bureau predicts
that there will be virtually no population
growth in the 20-to-44 age bracket between
2000 and 2010, with only a modest 3%
growth for those under the age of 20. The
low growth for these age groups will likely
temper demand for more traditional death
benefit products, where policy benefits are
often intended to protect families from the
loss of a working spouse or parent.
Profitability
Life insurers’ profits consist of two compo-
nents: underwriting income and investment in-
come. For purposes of this discussion, we
analyze both of these as components of an
insurer’s operating income, which is net in-
come excluding after-tax realized invest-
ment gains or losses.
The profitability of underwriting
When analyzing underwriting results,
consider the company’s rate of premium
growth, its fee income, and whether it uses
reinsurance. The company’s expenses, in-
cluding policyholder benefits, and its sell-
ing costs are then examined. These
measures then can be compared with ag-
gregate industry data to see how a compa-
ny stacks up against its peers.
Some companies report fee income sepa-
rately from premium income; others com-
bine the two and call them “premiums and
equivalents.” Either way, both of these rev-
enue components must be considered when
analyzing underwriting results.
◆ Rate of premium growth. Pay careful
attention to the circumstances surrounding
the rate of premium growth. For example,
if a company increases its premium base
10% while the overall industry is growing
by 5% a year, that company would appear
to be outperforming its peer group. Pre-
sumably, the stock market would award
that firm a higher valuation than would be
given to some of its slower-growth peers.
However, if the insurer is achieving premi-
um growth by adopting risky practices —
such as offering unusually high rates of re-
turn on certain investment-oriented life in-
surance products — that insurer’s valuation
would be adjusted downward accordingly.
A company expanding its premium base
at a rate slower than that of the overall in-
dustry could be doing so because it is limit-
ing its exposure to certain types of less
attractive business or trying to manage its
asset-liability mix. Often, insurers that are
very prudent in their underwriting practices
show lower-than-average premium growth
but above-average profit growth.
◆ Fee income. As the life insurance in-
dustry’s product mix shifts from one that
generates only premium revenues (from so-
called traditional life insurance products)
to one with a growing level of fee income
(from fee-based products like annuities),
the level of overall revenue growth may be
masked by declining or flat premium
growth. In many cases, this is offset by
rather robust growth in fee income.
◆ Reinsurance. Another factor that affects
the rate of premium growth is the extent to
which an insurer uses reinsurance. This is the
practice of transferring some risk — and pre-
mium income — to reinsurance companies.
To offset slowing premium growth, some in-
surers have reduced the level of premiums
that they cede (or transfer) to reinsurers.
Because using less reinsurance lets an in-
surer keep more of each premium dollar, a
reduced level of reinsurance may enhance
year-to-year premium growth comparisons.
However, using less reinsurance removes a
safety net of protection and leaves a primary
insurer more exposed to large claims.
◆ Benefits and other expenses. The largest
expense facing most life insurers is policy-
holder benefits. These include: death benefits
to life insurance policyholders; accident,
health, and disability benefits to health insur-
ance policyholders; and annuity benefits.
Benefits also include surrender benefits,
which arise when policyholders and annui-
tants terminate their policies or annuities.
Clearly, a sharp rise in any of those bene-
fits should trigger a further investigation into
the causes behind the rise. Again, an insurer’s
business mix will greatly influence its level of
benefit expenses and the growth rates there-
in. For example, an insurer that writes a
large amount of fixed-rate annuities — insur-
ance contracts that guarantee a set interest
rate that will be paid on the principal
amount deposited in the annuity — may see
its surrender rates increase if investors can
obtain higher rates of return on their invest-
ment dollars elsewhere.
However, one should closely examine an
insurer whose surrender rates rise sharply
during a period of stable surrenders for the
industry. This could indicate that policyhold-
ers and annuitants have lost faith in the com-
pany’s ability to meet its obligations and
have pulled out their money in a move simi-
lar to a “run” on a bank.
Two factors that influence the level of poli-
cyholder benefits are trends in mortality and
morbidity. Mortality is the ratio of deaths to a
specific population. Morbidity is the frequency
of the incidence of disease, illness, or sickness.
Insurers use various mortality and morbidity
assumptions in pricing their policies; these as-
sumptions usually are not disclosed. However,
in the annual report, a section called “manage-
ment’s discussion and analysis of financial con-
dition” often includes the insurer’s discussion
of general mortality and morbidity trends. It is
important to note whether actual mortality and
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
morbidity trends were in line with the insurer’s
assumptions.
◆ Selling costs. Aside from assorted policy-
holder benefits, costs to produce new business
or acquire policies — including agent commis-
sions and other related selling expenses — also
take a big bite out of insurers’ budgets.
To measure an insurer’s effectiveness at
marketing its products, a “lapse ratio” is
used. This is the number of life insurance
contracts that have lapsed (or terminated due
to nonpayment) within a specific period, di-
vided by the number of policies in force dur-
ing that period. A lower lapse ratio is usually
better for an insurer’s profitability, due to the
high level of expenses (primarily agent com-
missions) that insurers incur to produce new
business. Conversely, one would also look
25
 S&P Ratings Services View:
Evaluating a life insurance
company’s creditworthiness
When assigning corporate credit ratings, Stan-
dard & Poor’s Rating Services assesses companies’
management and execution of corporate strategy, as
well as their business risk and financial risk profiles.
Standard & Poor’s believes that the following
success factors are critical for companies in the
life insurance sector. Companies that display
these characteristics often receive stabilized or
upgraded credit ratings within two years. Con-
versely, those that lack these traits may see their
ratings fall. The status of interest rates and equi-
ty markets relative to these factors also plays a
role in our ratings.
Business risk
Standard & Poor’s believes successful life insur-
ance companies are distinguished by competitive ad-
vantages that are sustainable over the long term.
These advantages help drive the growth of revenue
and earnings.
◆ Scale and efficiency. Companies that con-
trol costs, through either scale or operational effi-
ciency, are likely to enjoy pricing flexibility. Scale
provides the potential for more cost efficiency by en-
abling a company to spread fixed costs over a larger
block of policies in force. It also provides insurers
with the ability to ride out difficult market conditions
and minimize revenue and earnings volatility.
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
for a high level of persistency — the percent-
age of life insurance policies remaining in
force or that have not been canceled for pre-
mium nonpayment — during the term.
Investment profitability
Investment income is an important rev-
enue source for life insurers; in some cases, it
provides almost half of an insurer’s total rev-
enues. One should review the insurer’s asset
allocation strategy, then calculate such mea-
sures as yield and total return. Two standard
financial ratios — return on assets and re-
turn on equity — also help the analyst to as-
sess a company’s profitability.
◆ Asset allocation strategies. When evalu-
ating an insurer’s investment portfolio, re-
26
While scale is important, Standard & Poor’s be-
lieves that effective management, with respect to
controlling costs and making use of technology, also
differentiates companies on competitive position and
operating performance. Managing distribution costs
is especially critical. Many so-called “captive sys-
tems” (in which a company maintains an extensive
force of its own sales people) have been downsized
to better align the expenses and revenues of this crit-
ical but costly channel.
◆ Customer service and product innovation.
These two areas are key. The growing commoditization
of life insurance and variable annuity products in recent
years has heightened the importance of service. The
blurring of product distinctions has also meant that com-
panies that are able to innovate have a competitive ad-
vantage. Excelling in these two areas may allow
companies to break away from the competition.
◆ Distribution effectiveness and efficiency.
Standard & Poor’s believes that an effective and effi-
cient distribution platform is a competitive advan-
tage over the long term. Aside from brand strength,
the breadth of a company’s distribution network is
particularly important.
With the shift away from captive reps, indepen-
dent brokers are becoming the primary distribution
mode as insurers increasingly target the upscale
market. Accordingly, a company’s ability to manage
the wholesaling and distribution of its products has
also become critical.
view its asset allocation strategy to see
whether the mix of invested assets is appro-
priate for the kind of business that it writes.
For most insurers, the investment process is
fairly straightforward. Most life insurers
keep the bulk of their invested assets in rela-
tively liquid fixed-income or equity securities
that can be easily converted into cash to pay
policy or annuity obligations.
For each asset class, such as stocks or
bonds, a review of asset quality and diversifi-
cation is prudent. To help in the analysis of
asset quality, insurers usually provide the
debt rating of bonds in their portfolio or an
average debt rating for their entire portfolio.
Life insurers’ obligations tend to be rela-
tively long-term in nature: the amount of
time from a policy’s inception to the payment
 The productivity of “wholesalers” (internal sales-
people who work with external distributors) is a differ-
entiating metric. Recruitment and retention of highly
productive wholesalers is important in sustaining a
strong competitive position, but has become more diffi-
cult recently as competition for wholesaler services has
intensified. Some companies have addressed this
through acquisitions, though history shows that differ-
ences in corporate cultures can make integrating distri-
bution channels a challenge.
◆ Risk management. Standard & Poor’s views
strong risk management capabilities as a necessity
to address the ever-increasing product risk that is
emerging in the sector. Furthermore, management
teams that deploy risk management techniques ef-
fectively to measure risk across a spectrum of met-
rics (primarily risk-adjusted return on capital) and
time horizons are more likely to introduce products
that are profitable.
This is because insurance liabilities reflect expo-
sure to interest rates and equity markets, both of
which are volatile. Standard & Poor’s believes that
the more sophisticated risk managers will deploy
stochastic modeling techniques to better identify and
manage so-called “tail risks” — events, such as a
stock market crash that, while highly unlikely, could
be devastating to life insurers.
While the organizational structure of a company’s
risk management function is important, Standard &
Poor’s believes successful risk management depends
more on the people — that is, risk managers execut-
ing the strategy. Similar to corporate governance and
controls on asset/liability management, effective risk
of a benefit or claim is often lengthy. For this
reason, some life insurers invest a portion of
their invested assets in relatively illiquid (but
theoretically higher-yielding) mortgage loans
and real estate. A review of this asset class
should include an analysis of the reserve lev-
els, the level of delinquencies (in the case of
mortgage loans), and the diversification of
the real estate portfolio (both by property
type and by geographic location).
◆ Measures of investment success. Two
industry-specific ratios that help the ana-
lyst to measure a company’s investment
success are yield and total return. Yield is
usually calculated as the net investment in-
come during a certain period, divided by
the portfolio’s average value during the
management requires a tone that is set from the top
of the organization.
Financial risk
When assessing financial risk, we look at a com-
pany’s earnings stability and financial discipline.
◆ Earnings stability. The stability of a compa-
ny’s earnings on a GAAP basis will continue to be
critical for credit ratings. In particular, life insurers
that depend too heavily on the performance of equi-
ty markets for earnings face the possibility of a rat-
ings downgrade.
Companies that diversify their earnings streams
wisely and rely less on a core line of business can avoid
earnings volatility. Other things being equal, we look fa-
vorably on companies with a healthy balance among un-
derwriting, investment income, and fees, since diverse
sources of earnings help mitigate volatility.
◆ Financial discipline. Financial discipline
continues to be a key factor in our credit ratings of
life insurers, and one indicator of it is profitable
growth. Focusing on market share is normally a
short-term strategy and contributes heavily to the in-
stability of long-term operating performance.
Consistent capital management and the appropri-
ate use of leverage also contribute to favorable credit
ratings. Making appropriate use of financial leverage
by acquiring companies or distribution channels can
be a key differentiator, provided the company also in-
tegrates the acquisition adequately. ■
— Kevin Ahern
Credit Ratings Analyst, Life Insurance
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
same period. Total return is usually calcu-
lated as net investment income plus or mi-
nus realized and unrealized gains, divided
by the portfolio’s beginning market value
plus or minus the weighted average of ad-
ditions or dispositions.
◆ Measures of profitability. Two broader
measures of profitability that are applicable
to life insurers are return on assets (ROA)
and return on equity (ROE).
ROA is equal to net income divided by
average total assets. A typical range of ROAs
for the life insurance industry is between
0.6% and 0.9%, with the average some-
where around 0.75%. This may appear low
relative to other industries, but is due to the
capital-intensive nature of insurers’ business.
27
 Return on equity is calculated by dividing
net income by average shareholders’ equity.
For the life insurance industry, ROE typically
ranges from 9% to 15%, with the average
somewhere around 12% or 13%.
Liquidity
Liquidity is another necessary perfor-
mance benchmark to consider when analyz-
ing a life insurer, because the insurer must be
able to pay policyholder claims promptly. An
insurer’s sources of liquidity arise from un-
derwriting cash flow, investment cash flow,
and asset liquidation cash flow.
For the most part, underwriting cash flow
tends to be positive for life insurers. Combin-
ing this with the cash flow from investment
activities, most insurers usually produce a
substantial, positive cash flow.
Another measure of liquidity is the
quick ratio. This is calculated by dividing
assets that can be quickly liquidated at rea-
sonable cost (i.e., cash, trade receivables,
and marketable securities), by current lia-
bilities. Sometimes referred to as the acid-
test ratio, the quick ratio is designed to
measure an organization’s ability to pay all
its current liabilities promptly without re-
sorting to the more costly and potentially
ill-timed sales of long-term investments or
assets. This ratio typically ranges from 9%
to 11%. An insurer with a business mix
that contains mostly shorter-term obliga-
tions would need to maintain a higher
quick ratio — that is, greater liquidity —
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
valuation reserve — typically ranges from
8% to 10%.
Operating and GAAP earnings
Net income is calculated under generally
accepted accounting principles (GAAP); but
when life insurance companies report earn-
ings, financial analysts tend to focus instead
on operating earnings (a non-GAAP account-
ing measure of profitability). The main dri-
vers of operating earnings consist of revenues
(including insurance premiums and fees, ad-
visory fees, and net investment income) and
expenses that are associated with benefits,
underwriting, acquisitions, insurance, and
core business operations.
In comparison, GAAP net income also
may include realized investment gains and
losses, the change in the fair value of the in-
terest rate component of cross-currency
swaps, and certain nonrecurring items (mi-
nus interest expense and taxes). Operating
earnings are often less volatile than net in-
come, which permits trends to be more dis-
cernible, and they exclude the impact of
realized investment gains and losses, where
management can have some discretion over
the timing of investment sales. ■

than one whose business mix is predomi-

nantly longer-term obligations.

Leverage

For life insurers, leverage usually measures

the extent to which a firm uses its capital
base (policyholders’ surplus or shareholders’
equity) to produce business. The ratio of pre-
miums to surplus is a good gauge of lever-
age. However, for an accurate picture of
leverage, premium equivalence also should
be included in this calculation. The ratio of
adjusted capital and surplus to liabilities
gauges the relative strength of an insurer’s
capital base compared with its obligations.
This ratio — calculated as capital and sur-
plus funds plus the asset valuation reserve,
divided by total liabilities, excluding the asset

28
G LOSSARY
Accumulation period — The period during which an in-
sured person makes premium payments on a life insur-
ance policy; also, the time before the commencement
of income payments under an annuity contract.
Actuary — A person in the profession of calculating
statistical risks, premium levels, and other technical
aspects of insurance.
Adjustable life — A form of life insurance that allows
changes on the policy face amount, the amount of
premium, the period of protection, and the length of
the premium payment period.
Administrative services only (ASO) — Services — such
as actuarial work, benefit plan design, claims pro-
cessing, financial advice, and report preparation —
provided by an insurer to an employer or other eligi-
ble group, which accepts the underwriting risk; also
known as self-insurance.
Admitted assets — Assets that regulators include when
determining an insurer’s financial condition. Admit-
ted assets are usually those that have a high degree
of liquidity (i.e., can be converted easily into cash).
Admitted company — An insurance company autho-
rized and licensed to do business in a given state.
Adverse selection — The tendency of persons with
poorer-than-average risks to apply for or maintain in-
surance coverage.
Agent — A person who acts as the representative of an
insurer to sell insurance policies.
Annuity — A contract providing income at regular in-
tervals for a specified period, such as a set number
of years or the lifetime of the annuitant. Payouts for
an annuity can be immediate or deferred, as well as
fixed or variable, and premiums can be single, multi-
ple, and/or flexible.
Asset-liability management (ALM) — The practice of
matching the anticipated market value of assets to
that of the liabilities they support for differing market
environments, such as changes in interest rates.
ALM is important for insurers, because relative
changes in asset and liability values can have signif-
icant effects on surplus.
Bank-owned life insurance (BOLI) — Insurance pur-
chased by a bank on the lives of its executives.
The bank pays the premiums, is the beneficiary,
and owns the cash value of the policies. Similar to
company-owned life insurance (COLI), BOLI can
be used to finance employee benefits and aug-
ment net income.
Benefit ratio — The present value of total expected ex-
cess payments over the life of the contract, divided
by the present value of total expected assessments
over the life of the contract.
Broker — One who represents an insured in the solici-
tation, negotiation, or procurement of insurance con-
tracts. A broker also may be an agent of the insurer
for certain purposes such as policy delivery or pre-
mium collection.
Broker-agent — One acting as agent for a set of insur-
ers and as broker in dealing with other insurers.
Captive insurer — An insurance organization, usually
unadmitted, that a company establishes to insure its
own risks. (See Admitted company.)
Cash flow underwriting — The use of rating and premi-
um collection techniques by insurance companies to
maximize interest earnings on premiums.
Cash surrender value — The amount of cash available
to a policyholder upon the voluntary termination of a
cash value life insurance policy before it becomes
payable by death or maturity.
Cede — To transfer to a reinsurer all or part of the insur-
ance or reinsurance written by the ceding company.
Coinsurance — An agreement whereby the insurer and
another party share all losses covered by a policy at
a set proportion.
Combined ratio — The sum of an expense ratio and a
loss ratio, often under statutory accounting proce-
dures. An underwriting profit occurs when the com-
bined ratio is under 100%.
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
Commutation — Typically, the exchange of installment
benefits for a lump sum. Under some reinsurance
treaties, it refers to the estimation, payment, and
complete discharge of all future obligations for rein-
surance losses, regardless of the continuing nature
of certain losses.
Company-owned life insurance (COLI) — Insurance
purchased by a company on a group of its employ-
ees, whereby the company pays the premiums, owns
the cash value of the policies, and is the beneficiary.
Often used to finance employee benefit expenses
and increase corporate net income.
29
 Convention statement — The uniform annual financial
statement required by all US insurance jurisdictions
as prescribed by the National Association of Insur-
ance Commissioners. Convention statements are
prepared using statutory (rather than GAAP) ac-
counting methods. (See Generally accepted ac-
counting principles.)
Credit insurance — Insurance on a debtor in favor of a
creditor to pay off the balance due on a loan in the
event of the death or disability of the debtor.
Deferred acquisition cost (DAC) — The capitalized
sales cost associated with acquiring new business,
which is then amortized (expensed) over the term of
the contract or service provided. DAC is a feature of
GAAP accounting, but not statutory accounting.
Demutualization — The process by which a mutual in-
surance company converts to a stock insurance
company. In the conversion process, the mutual in-
surer offers policyholders cash or stock in the new
company. The demutualized company may also make
a public stock offering.
Direct written premium — Premiums collected by an in-
surer without an allowance for premiums ceded to
reinsurers.
Disability benefit — A feature of some life insurance
policies that provides for the waiver of premiums if
the policyholder becomes totally and permanently
disabled; a monthly income payment is sometimes
provided as well.
Disability income insurance — Health insurance that
provides periodic payments to replace income, actu-
ally or presumptively lost, when the insured is unable
to work due to sickness or injury.
Earned premium — Portion of a premium for which
the insurer has already provided protection for the
policyholder.
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
Embedded value — A conservative insurance valuation
method commonly employed outside North America.
It is calculated by adding a firm’s adjusted net asset
value (ANAV) to the present value of expected future
profits to the firm, or the value of business in force
(VBIF); it excludes contributions from new business
generated beyond existing policies and contracts.
Endowment insurance — Life insurance where the face
amount is payable to the insured at the end of the con-
tract or to a beneficiary if the insured dies before then.
Equity-indexed annuity (EIA) — An annuity offering a mini-
mum guaranteed interest rate combined with an inter-
est rate linked to a market index. Because of the
guaranteed rate, EIAs have less market risk than vari-
able annuities, with the potential to earn returns better
than fixed annuities when the stock market is rising.
30
Expense ratio — The percentage of the premium dollar
devoted to paying the expenses of the insurer other
than losses, usually calculated on a statutory ac-
counting basis.
Facultative reinsurance — Reinsurance covering only
specified individual risks.
Financial strength rating — An independent opinion fur-
nished by a rating agency regarding an insurer’s
ability to meet its obligations to policyholders. An in-
surer’s financial strength rating is often an important
measure used by consumers when comparing differ-
ent insurance products.
Fixed annuity — An annuity that provides a fixed pay-
ment (usually a fixed rate of interest) that will be
paid on the principal deposited in the annuity.
Fraternal insurance — Insurance offered to a special
group of people, namely, members of a lodge or fra-
ternal order.
General account — An investment portfolio used by an
insurer for investment of premium income not attrib-
uted to policyholder separate accounts.
Generally accepted accounting principles (GAAP) —
An accounting method that, among other things, at-
tempts to match a company’s income and expenses
by prorating costs over an insurance policy’s as-
sumed life. The GAAP method is employed in the au-
dited financial statements of publicly held
companies. (See Statutory accounting.)
Guaranteed investment contract (GIC) — A product of-
fered by life insurance companies that guarantees a
specified rate of return over the life of the contract.
Corporations sometimes offer GICs as part of a
401(k) plan.
Guaranteed minimum death benefit (GMDB) — An op-
tion offered with some variable life policies that
guarantees the death benefit irregardless of the
cash value of the policy.
Guaranteed minimum income benefit (GMIB) — An op-
tion offered with some variable annuities whereby
the annuitant is entitled to a particular minimum level
of annuity payments, even if the account value does
not support that particular level of payments (e.g.,
due to investment losses).
Guaranteed minimum withdrawal benefit (GMWB) — An
option offered with some variable annuities that guar-
antees annuity payments to be at least equal to the sum
of all premiums paid, regardless of account value.
Health savings account (HSA) — A tax-deductible sav-
ings account associated with a high-deductible in-
surance plan that may be used to pay current and
future healthcare costs. Annual contributions are
limited, and unused balances roll over year to year.
Incurred but not reported (IBNR) — Losses that have
occurred during a stated period but have not yet
been reported to the insurer.
Insurance examiner — The representative of a state
insurance department assigned to participate in
an insurance company’s official audit.
Insurance in force — Insurance for which premiums
are being paid or have been fully paid. It refers to the
total face value of a life insurer’s portfolio of busi-
ness: in other words, the potential maximum claim
against an insurer.
Investment reserve — An item in the balance sheet of
an insurance company that represents a setting
aside of assets to compensate for a possible reduc-
tion in the market value of securities owned by the
company.
Lapse ratio — The ratio of the number of contracts or
policies lapsed during a specified period to the num-
ber in force at the beginning of that period.
Lapsed policy — A policy terminated for nonpayment of
premiums. This term is sometimes limited to termina-
tion that happens before the policy has accumulated
a cash value or other surrender value.
Legal reserve — The minimum reserve required to be
established for a life insurance contract according to
local law.
Living benefits rider — A rider attached to life insur-
ance policies that provides long-term care benefits
or benefits for the terminally ill.
Long-term care (LTC) insurance — A policy that reim-
burses daily health and social service expenses in-
curred when the insured is confined to a nursing
care facility.
Loss adjustment expense — The cost of adjusting losses
for filed claims, excluding the amount of the loss itself.
Loss development — The difference between the
amount of losses initially estimated by an insurer and
the amount evaluated at a later date.
Loss ratio — Losses divided by the premiums paid.
Market conduct exam — An examination by state in-
surance regulators of the business practices and op-
erations of an insurer and its agents.
Million Dollar Round Table — An association of life in-
surance agents who qualify by selling $1 million or
more of life insurance coverage.
Morbidity — The relative incidence of disease; often
refers to the ratio of incidence of sickness to the num-
ber of people in a given group over a given time period.
Mortality rate — Relationship of the frequency of deaths
of individual members of a group to the entire group
over a particular time period; also, the death rate result-
ing from specific kinds of illness or disease.
Mortality table — A table showing the incidence of
death at specified ages.
Mutual insurance company — An insurance company
that has no capital stock, but is owned by its policy-
holders, who also elect its governing body. Earnings
of the mutual company belong to the policyholders
and may be distributed to them in the form of policy
dividends or reduced premiums.
Net interest earned — The interest earned by an insur-
er on its investments, typically after investment ex-
penses but before income taxes.
Net premiums written — Premium income retained by
insurance companies, directly or through accept-
ing reinsurance, less payments made for business
reinsured.
New money yield — The average investment yield on gen-
eral account assets recently purchased by an insurer.
Nonparticipating policy — An insurance policy that
does not pay policy dividends. Premiums for nonpar-
ticipating policies are usually lower than those for
participating policies.
Ordinary life insurance — A whole life policy that re-
quires premiums continuously as long as the insured
lives; also called straight life insurance.
Participating policy — An insurance policy that distrib-
utes policy dividends by cash payments, reduced
premiums, or units of paid-up life insurance.
Permanent life insurance — A term loosely applied to
life insurance other than group and term; usually,
cash value life insurance such as whole life.
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
Persistency — The tendency or likelihood of insurance
business not lapsing or being replaced by another
insurer’s product.
Policy dividend — The return of part of the premium
paid for a policy issued on a participating basis.
Policy loan — A loan made by a life insurance company
from its general funds to a policyholder, using the
policy’s cash value as security.
Portfolio yield — The average investment yield, exclud-
ing realized and unrealized gains, on an insurer’s
general account assets.
Premium — The payment, or one of the periodic pay-
ments, that a policyholder agrees to make for an in-
surance policy.
31
 Rate — The cost of a given unit of insurance; premium
is the rate multiplied by the number of units of insur-
ance purchased.
Reinsurance — The practice whereby a third party (the
reinsurer) agrees to indemnify part or all of the liabil-
ity from a policy underwritten by an insurance carri-
er in return for the payment of a premium or other
consideration.
Reserves — Funds set aside to cover costs of claims
incurred but not yet fully settled; the amount may
represent both actual and potential liabilities.
Retrocession — The transaction whereby a reinsurer
cedes all or part of the reinsurance it assumed to
another reinsurer.
Rider — A special provision or group of provisions that
may be added to a policy to expand or to limit the
benefits otherwise payable.
Risk-based capital — The amount of capital an insurer
needs to meet its obligations to policyholders. State
regulatory bodies calculate risk-based capital levels,
taking into account various types of risk, and com-
pare them with companies’ actual capital.
Separate account — An asset account established by
an insurer and segregated from other funds; used
primarily for pension plans and variable life products.
This arrangement permits wider latitude in the insur-
er’s investment choices, particularly in equities and
real estate.
Statutory accounting principles (SAP) — An accounting
format used by state insurance regulators, SAP is
essentially cash-oriented (rather than accrual-
oriented, as GAAP is) and has such requirements as
immediately expensing all costs related to writing
business. More conservative than GAAP, which fo-
cuses on profit growth, statutory accounting focuses
on solvency — a firm’s ability to meet its obligations.
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
Stock insurance company — An incorporated insur-
ance company owned by its stockholders, who re-
ceive profits in the form of stockholder dividends and
who elect a board to direct the firm’s management.
Surplus — The excess of assets over liabilities; surplus
determines an insurer’s capacity to write business
and consists of surplus paid in by stockholders and
surplus earned through operations.
Surrender charge — A fee levied on a policyholder
when a life insurance policy or annuity is surren-
dered for its cash value prior to its maturity date or
contract termination date. Such fees are meant to
discourage early retirement of policies and annuity
contracts and are typically structured to recover the
costs an insurer undertook to write the policy, known
as the policy acquisition costs.
32
Term insurance — Life insurance payable to a benefi-
ciary only when the insured dies within a specific
time period.
Underwriting profit/loss — Profits or losses resulting from
insurance activities, calculated on a statutory basis, as
contrasted with that realized from investments.
Universal life (UL) — A combination flexible premium,
adjustable life insurance policy. Universal variable
life (UVL) policies combine universal life insurance
with variable life features.
Variable annuity (VA) — A type of annuity under which
the amount of each benefit payment is not guaran-
teed or specified in the contract. Rather, benefit pay-
ments fluctuate depending on the investment results
of the assets held in the account.
Variable life (VL) — Life insurance that is similar to
whole life in that its premiums are fixed. The variable
aspects are the death benefit and the cash surren-
der value. The death benefit is based on the value of
assets behind the contract at the time the benefit is
paid, above a guaranteed minimum. The cash value
is similarly determined, but no minimum is guaran-
teed. The assets underlying variable life policies’
benefits are usually held in separate accounts.
Viatical settlement — The sale to a third party of an exist-
ing life insurance policy. The seller receives a cash
payment from the buyer, which generally exceeds the
cash surrender value but is less than the net death
benefit. The buyer then pays the remaining premiums
and receives the death benefit when the insured dies.
Viatical settlements are also referred to as “life settle-
ments,” predominantly in cases where the insured is
older with a life expectancy exceeding two years.
Whole life — Life insurance that may be kept in-force
for a person’s whole life and pays a benefit upon the
person’s death. Premiums may be payable for a
specified number of years (limited payment life) or
for life (straight life), though typically only to age 100.
(See Term insurance.)
Wirehouse — A reference to the largest brokerage
firms; dates back to when only the largest brokers
had branches receiving financial market data by
high-speed communication (“wires”).
XXX reserves — Reserves established by insurers for
certain secondary guarantees associated with poli-
cies such as universal life and variable universal life.
The term denotes National Association of Insurance
Commissioners (NAIC) Model Regulation XXX, which
established the need for these reserves.
I NDUSTRY R EFERENCES
PERIODICALS
Best’s Review
BestWeek
A.M. Best Co. Inc.
Ambest Rd., Oldwick, NJ 08858
(908) 439-2200
Web sites: http://www.bestreview.com
http://www.bestweek.com
A monthly magazine and a weekly newsletter, respec-
tively, covering issues in the life insurance industry.
InvestmentNews
Crain Communications Inc.
711 Third Ave., 3rd Fl., New York, NY 10017
(212) 210-0775
Web site: http://www.investmentnews.com
A weekly newsletter for investment advisers covering
the entire financial services industry.
National Underwriter: Life & Health/Financial Services
Edition
The National Underwriter Co.
33-41 Newark St., 2nd Fl., Hoboken, NJ 07030
(800) 543-0874; (201) 526-1230
Web site: http://www.nationalunderwriter.com/
lifeandhealth
Weekly magazine; news and information on the life and
health insurance and financial services industries.
Pensions and Investments
Crain Communications Inc.
711 Third Ave., New York, NY 10017
(212) 210-0751
Web site: http://www.pionline.com
Biweekly newsletter; concentrates on the professional
money management industry.
BOOKS
The Insurance Dictionary: What Means What When It
Comes to Life, Health, Business, Home, Auto and Other
Coverages
Silver Lake Publishing
Web site: http://www.silverlakepub.com/catalog/
product_info.php?cPath=45&products_id=110
Easy-to-use reference book that includes comprehen-
sive definitions, examples, and information on insur-
ance words, phrases, and concepts.
REFERENCES
NILS INSource Glossary
NILS Publishing Co., a unit of CCH Inc.
Web site: http://insource.nils.com/gloss/gloss.asp
NILS is a leading provider of insurance law and regula-
tory information. The INSource Glossary is an online re-
source that defines common insurance industry terms
and provides a search link so that users can see how
specific states define the same term in certain areas of
their legislation.
RESEARCH FIRMS
Advantage Compendium
Web site: http://www.indexannuity.org
Provides research and consulting services to select fi-
nancial companies in all aspects of index annuities.
Publishes the quarterly Advantage Index Product Sales
& Market Report and the Index Compendium monthly
newsletter.
SNL Financial
1 SNL Plaza, P.O. Box 2124, Charlottesville, VA 22902
(434) 977-1600
Web site: http://www.snl.com
A comprehensive source for financial services industry
data and analysis.
Spectrem Group
641 W. Lake St., Ste. 402, Chicago, IL 60661
(312) 382-8284
Web site: http://www.spectrem.com
Consulting firm specializing in the research and analy-
sis of the affluent, ultrahigh–net worth, and retirement
markets.
VARDS
Morningstar Inc.
225 W. Wacker Dr., Chicago, IL 60606
(312) 696-6000
Web site: http://www.vards.com
Provides sales tracking and product information for
variable annuities data; publishes The VARDS Report.
RATING AGENCIES
These agencies provide life/health insurer financial
strength ratings and reports; some also provide debt
rating services.
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
A.M. Best Co. Inc.
Ambest Rd., Oldwick, NJ 08858
(908) 439-2200
Web site: http://www.ambest.com
Fitch Inc.
1 State Street Plaza, New York, NY 10004
(212) 908-0500
Web site: http://www.fitchratings.com
Moody’s Investors Service Inc.
99 Church St., New York, NY 10007
(212) 553-0376
Web site: http://www.moodys.com
Standard & Poor’s
The McGraw-Hill Companies Inc.
55 Water St., New York, NY 10041
(212) 438-2000
Web site: http://www.standardandpoors.com
33
 Weiss Ratings Inc.
15430 Endeavour Dr., Jupiter, FL 33478
(561) 627-4400
Web site: http://www.weissratings.com
TRADE ASSOCIATIONS
American Council of Life Insurers (ACLI)
101 Constitution Ave. NW, Washington, DC 20001
(202) 624-2418
Web site: http://www.acli.com
Publishes the Life Insurance Fact Book, an annual com-
pilation of life insurance statistics.
America’s Health Insurance Plans
601 Pennsylvania Ave. NW, South Bldg., Ste. 500
Washington, DC 20004
(202) 778-3200
Web site: http://www.ahip.org
Publishes information and conducts conferences on a
wide range of issues affecting the health insurance
industry.
Bank Insurance and Securities Association
303 W. Lancaster Ave., Ste. 2D, Wayne, PA 19087
(610) 989-9047
Web site: http://www.bisanet.org
Publishes data on insurance and annuity products mar-
keted by banks and thrifts.
National Association of Insurance Commissioners
(NAIC)
2301 McGee St., Ste. 800, Kansas City, MO 64108
(816) 842-3600
Web site: http://www.naic.org
Publishes information on issues relevant to both the
life-and-health and property-casualty segments of the
insurance industry.
Society of Professional Administrators and
Recordkeepers (SPARK)
RG Wuelfing & Associates
714 Hopmeadow St., Ste. 3, Simsbury, CT 06070
(860) 658-5058
Web site: http://www.rgwuelfing.com
Publishes the annual Marketplace Update Report, a
study of the 401(k) market.
Stable Value Investment Association
1025 Connecticut Ave. NW, Ste. 1000,
Washington, DC 20036
(202) 580-7620
Web site: http://www.stablevalue.org
Publishes a newsletter, technical papers, and informa-
tion regarding stable value products, such as guaran-
teed investment contracts (GICS).

Investment Company Institute

1401 H St. NW, Washington, DC 20005
(202) 326-5890
Web site: http://www.ici.org
Publishes statistics on open-end and closed-end mutu-
al funds and unit investment trusts.

LIMRA International
300 Day Hill Rd., Windsor, CT 06095
(860) 688-3358
Web site: http://www.limra.com
Provides research, consulting, and other services to
companies marketing annuity, disability, health, life, mu-
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY

tual fund, and retirement savings products.

National Association for Variable Annuities (NAVA)

11710 Plaza America Dr., Ste. 100, Reston, VA 20190
(703) 707-8830
Web site: http://www.navanet.org
Publishes information and conducts conferences on the
variable annuity and variable life insurance industries.

National Association of Health Underwriters

2000 N. 14th St., Ste. 450, Arlington, VA 22201
(703) 276-0220
Web site: http://www.nahu.org
Publishes Belth’s Annual Carrier Ratings Report, which
provides facts about all US life and health carriers, and
information on the financial strength of each.

34
D EFINITIONS FOR C OMPARATIVE C OMPANY A NALYSIS TABLES
Operating revenues
Net sales and other operating revenues. Excludes
interest income if such income is “nonoperating.”
Includes franchised/leased department income for
retailers and royalties for publishers and oil and mining
companies. Excludes excise taxes for tobacco, liquor,
and oil companies.
Net income
Profits derived from all sources, after deductions of
expenses, taxes, and fixed charges, but before any
discontinued operations, extraordinary items, and
dividend payments (preferred and common).
Return on revenues
Net income divided by operating revenues.
Return on assets
Net income divided by average total assets. Used in
industry analysis and as a measure of asset-use
efficiency.
Return on equity
Net income, less preferred dividend requirements,
divided by average common shareholder‘s equity.
Generally used to measure performance and to make
industry comparisons.
Current ratio
Current assets divided by current liabilities. It is a
measure of liquidity. Current assets are those assets
expected to be realized in cash or used up in the
production of revenue within one year. Current liabilities
generally include all debts/obligations falling due within
one year.
Debt/capital ratio
Long-term debt (excluding current portion) divided by
total invested capital. It indicates how highly “leveraged”
a company might be. Long-term debt includes those
debts/obligations due after one year, including bonds,
notes payable, mortgages, lease obligations, and
industrial revenue bonds. Other long-term debt, when
reported as a separate account, is excluded; this account
generally includes pension and retirement benefits. Total
invested capital is the sum of stockholders’ equity, long-
term debt, capital lease obligations, deferred income
taxes, investment credits, and minority interest.
Debt as a percent of net working capital
Long-term debt (excluding current portion) divided by the
difference between current assets and current liabilities.
It is an indicator of a company’s liquidity.
Price/earnings ratio
The ratio of market price to earnings, obtained by
dividing the stock’s high and low market price for the
year by earnings per share (before extraordinary items).
It essentially indicates the value investors place on a
company’s earnings.
Dividend payout ratio
This is the percentage of earnings paid out in dividends.
It is calculated by dividing the annual dividend by the
earnings. Dividends are generally total cash payments
per share over a 12-month period. Although payments are
usually calculated from the ex-dividend dates, they may
also be reported on a declared basis where this has been
established to be a company’s payout policy.
Dividend yield
The total cash dividend payments divided by the year’s
high and low market prices for the stock.
Earnings per share
The amount a company reports as having been earned
for the year (based on generally accepted accounting
standards), divided by the number of shares outstanding.
Amounts reported in Industry Surveys exclude
extraordinary items.
Tangible book value per share
This measure indicates the theoretical dollar amount
per common share one might expect to receive should
liquidation take place. Generally, book value is
determined by adding the stated (or par) value of the
common stock, paid-in capital, and retained earnings,
then subtracting intangible assets, preferred stock at
liquidating value, and unamortized debt discount. This
SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY
amount is divided by the number of outstanding shares
to get book value per common share.
Share price
This shows the calendar-year high and low of a stock’s
market price.
In addition to the footnotes that appear at the bottom of
each page, you will notice some or all of the following:
NA—Not available.
NM—Not meaningful.
NR—Not reported.
AF—Annual figure. Data are presented on an annual
basis.
CF—Combined figure. In this case, data are not available
because one or more components are combined with
other items.
35
36 SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY

C OMPARATIVE C OMPANY A NALYSIS — I NSURANCE : L IFE & H EALTH

Operating Revenues
Million $ Compound Growth Rate (%) Index Basis (1996 = 100)
Ticker Company Yr. End 2006 2005 2004 2003 2002 2001 1996 10-Yr. 5-Yr. 1-Yr. 2006 2005 2004 2003 2002
LIFE & HEALTH INSURANCE‡
AFL * AFLAC INC DEC 14,616.0 14,363.0 13,275.0 11,447.0 10,257.0 9,598.0 7,039.9 7.6 8.8 1.8 208 204 189 163 146
DFG § DELPHI FINANCIAL GRP -CL A DEC 1,411.6 F 1,222.8 D,F 1,055.8 F 918.2 F 761.4 F 594.4 F 487.3 A,C 11.2 18.9 15.4 290 251 217 188 156
LNC * LINCOLN NATIONAL CORP DEC 9,063.0 A 5,473.7 5,236.3 5,283.9 4,644.4 6,362.1 6,719.8 A 3.0 7.3 65.6 135 81 78 79 69
MET * METLIFE INC DEC 48,396.0 D,F 44,776.0 A,C 39,014.0 D,F 35,789.0 D,F 33,147.0 D,F 31,928.0 A,F NA NA 8.7 8.1 ** ** ** ** NA
PLFE § PRESIDENTIAL LIFE CORP DEC 358.8 F 458.6 F 396.3 F 344.3 F 204.7 F 284.4 F 223.7 F 4.8 4.8 (21.8) 160 205 177 154 92

PFG * PRINCIPAL FINANCIAL GRP INC DEC 9,870.5 A,C 9,007.7 D 8,303.7 D 9,404.2 8,822.5 D 8,764.3 A NA NA 2.4 9.6 ** ** ** ** NA
PL † PROTECTIVE LIFE CORP DEC 2,679.1 A 2,109.2 1,988.6 1,957.5 1,920.7 A 1,614.2 D 1,038.0 9.9 10.7 27.0 258 203 192 189 185
PRU * PRUDENTIAL FINANCIAL INC DEC 32,484.0 31,699.0 D 28,280.0 A,C 27,842.0 A,C 26,652.0 D 27,177.0 A NA NA 3.6 2.5 ** ** ** ** NA
SFG † STANCORP FINANCIAL GROUP INC DEC 2,492.9 A 2,337.2 2,149.7 2,066.8 1,750.3 1,585.4 NA NA 9.5 6.7 ** ** ** ** NA
TMK * TORCHMARK CORP DEC 3,411.3 3,112.4 3,071.5 2,930.6 2,738.0 2,707.0 C,D 2,205.8 4.5 4.7 9.6 155 141 139 133 124

UNM * UNUM GROUP DEC 10,532.7 D 10,431.5 A 10,450.9 A 9,991.6 A,C 9,613.0 9,394.8 4,042.7 A 10.0 2.3 1.0 261 258 259 247 238
MULTI-LINE INSURANCE‡
AFG † AMERICAN FINANCIAL GROUP INC DEC 4,226.5 D 4,038.3 3,906.3 3,339.8 D 3,751.1 3,923.6 4,132.4 0.2 1.5 4.7 102 98 95 81 91
AIG * AMERICAN INTERNATIONAL GROUP DEC 113,489.0 F 108,340.0 C,F 96,831.0 81,303.0 67,482.0 62,402.0 A,C 28,105.9 15.0 12.7 4.8 404 385 345 289 240
AIZ * ASSURANT INC DEC 7,963.2 7,455.2 7,355.1 6,997.9 6,441.7 6,056.9 A NA NA 5.6 6.8 ** ** ** ** NA
GNW * GENWORTH FINANCIAL INC DEC 11,029.0 A 10,504.0 11,017.0 A 11,671.0 A,C NA NA NA NA NA 5.0 ** ** ** ** NA
HIG * HARTFORD FINANCIAL SERVICES DEC 26,500.0 27,083.0 22,693.0 18,733.0 15,907.0 15,147.0 A 12,473.0 7.8 11.8 (2.2) 212 217 182 150 128

HCC † HCC INSURANCE HOLDINGS INC DEC 2,075.3 A,F 1,642.7 A,F 1,283.2 A,F 942.0 D,F 669.4 A,F 505.5 A,F 182.5 A 27.5 32.6 26.3 1,137 900 703 516 367
HMN † HORACE MANN EDUCATORS CORP DEC 873.8 869.4 878.3 866.2 771.9 804.5 703.8 D 2.2 1.7 0.5 124 124 125 123 110
LTR * LOEWS CORP DEC 17,203.5 F 15,205.2 F 15,209.0 A,F 15,809.6 A,C 16,827.8 D,F 18,799.1 F 19,964.8 F (1.5) (1.8) 13.1 86 76 76 79 84
UTR † UNITRIN INC DEC 3,074.2 3,048.1 3,040.8 2,943.8 2,298.2 A 1,971.7 1,523.1 7.3 9.3 0.9 202 200 200 193 151

Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year. ** Not calculated; data for base year or end year not available.
A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change. D - Data exclude discontinued operations. E - Includes excise taxes. F - Includes
other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.

Net Income

Million $ Compound Growth Rate (%) Index Basis (1996 = 100)

Ticker Company Yr. End 2006 2005 2004 2003 2002 2001 1996 10-Yr. 5-Yr. 1-Yr. 2006 2005 2004 2003 2002
LIFE & HEALTH INSURANCE‡
AFL * AFLAC INC DEC 1,483.0 1,483.0 1,299.0 795.0 821.0 687.0 394.4 14.2 16.6 0.0 376 376 329 202 208
DFG § DELPHI FINANCIAL GRP -CL A DEC 145.0 126.7 123.5 98.9 60.9 (0.9) 53.9 10.4 NM 14.5 269 235 229 184 113
LNC * LINCOLN NATIONAL CORP DEC 1,316.0 831.1 731.5 767.2 91.6 605.8 513.6 9.9 16.8 58.4 256 162 142 149 18
MET * METLIFE INC DEC 3,105.0 3,139.0 2,708.0 1,943.0 1,155.0 473.0 NA NA 45.7 (1.1) ** ** ** ** NA
PLFE § PRESIDENTIAL LIFE CORP DEC 49.7 91.6 66.0 31.3 (69.3) (7.7) 54.5 (0.9) NM (45.7) 91 168 121 57 (127)

PFG * PRINCIPAL FINANCIAL GRP INC DEC 1,033.7 891.9 702.5 727.9 619.9 369.5 NA NA 22.8 15.9 ** ** ** ** NA
PL † PROTECTIVE LIFE CORP DEC 281.6 246.6 250.4 217.1 178.8 141.1 89.0 12.2 14.8 14.2 316 277 281 244 201
PRU * PRUDENTIAL FINANCIAL INC DEC 3,363.0 3,602.0 2,332.0 1,308.0 256.0 (170.0) NA NA NM (6.6) ** ** ** ** NA
SFG † STANCORP FINANCIAL GROUP INC DEC 203.8 211.1 199.4 156.3 111.0 106.0 NA NA 14.0 (3.5) ** ** ** ** NA
TMK * TORCHMARK CORP DEC 518.6 495.4 475.7 430.1 383.4 390.9 318.5 5.0 5.8 4.7 163 156 149 135 120

UNM * UNUM GROUP DEC 403.6 513.6 (192.2) (264.6) 408.3 582.1 238.0 5.4 (7.1) (21.4) 170 216 (81) (111) 172
 Net Income (continued)

Million $ Compound Growth Rate (%) Index Basis (1996 = 100)

Ticker Company Yr. End 2006 2005 2004 2003 2002 2001 1996 10-Yr. 5-Yr. 1-Yr. 2006 2005 2004 2003 2002
MULTI-LINE INSURANCE‡
AFG † AMERICAN FINANCIAL GROUP INC DEC 428.2 207.8 367.9 321.2 125.0 (4.8) 262.0 5.0 NM 106.0 163 79 140 123 48
AIG * AMERICAN INTERNATIONAL GROUP DEC 14,014.0 10,477.0 9,983.0 9,265.0 5,519.0 5,499.0 2,897.3 17.1 20.6 33.8 484 362 345 320 190
AIZ * ASSURANT INC DEC 715.9 479.4 350.6 185.7 259.7 98.1 NA NA 48.8 49.3 ** ** ** ** NA
GNW * GENWORTH FINANCIAL INC DEC 1,324.0 1,221.0 1,145.0 969.0 NA NA NA NA NA 8.4 ** ** ** ** NA
HIG * HARTFORD FINANCIAL SERVICES DEC 2,745.0 2,274.0 2,138.0 (91.0) 1,000.0 549.0 (99.0) NM 38.0 20.7 NM NM NM NM NM

HCC † HCC INSURANCE HOLDINGS INC DEC 342.3 188.4 159.0 106.9 105.8 30.2 29.3 27.9 62.5 81.6 1,168 643 543 365 361
HMN † HORACE MANN EDUCATORS CORP DEC 98.7 77.3 56.3 19.0 11.3 25.6 73.8 3.0 31.0 27.7 134 105 76 26 15
LTR * LOEWS CORP DEC 2,517.0 1,192.9 1,235.3 (666.1) 982.6 (535.8) 1,383.9 6.2 NM 111.0 182 86 89 (48) 71
UTR † UNITRIN INC DEC 283.1 255.5 240.2 123.6 (8.2) 380.9 132.5 7.9 (5.8) 10.8 214 193 181 93 (6)

Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year. ** Not calculated; data for base year or end year not available.

Return on Revenues (%) Return on Assets (%) Return on Equity (%)

Ticker Company Yr. End 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
LIFE & HEALTH INSURANCE‡
AFL * AFLAC INC DEC 10.1 10.3 9.8 6.9 8.0 2.6 2.6 2.4 1.7 2.0 18.2 19.1 18.3 12.2 13.9
DFG § DELPHI FINANCIAL GRP -CL A DEC 10.3 10.4 11.7 10.8 8.0 2.6 2.5 2.7 2.5 1.7 13.1 12.8 14.2 13.4 9.6
LNC * LINCOLN NATIONAL CORP DEC 14.5 15.2 14.0 14.5 2.0 0.9 0.7 0.7 0.8 0.1 14.2 13.2 12.2 13.8 1.7
MET * METLIFE INC DEC 6.4 7.0 6.9 5.4 3.5 0.6 0.7 0.8 0.6 0.4 9.4 11.8 12.3 10.1 6.9
PLFE § PRESIDENTIAL LIFE CORP DEC 13.9 20.0 16.6 9.1 NM 1.0 1.9 1.4 0.7 NM 7.9 15.0 12.2 7.1 NM

PFG * PRINCIPAL FINANCIAL GRP INC DEC 10.5 9.9 8.5 7.7 7.0 0.7 0.7 0.6 0.7 0.7 12.8 11.4 9.4 10.4 9.2
PL † PROTECTIVE LIFE CORP DEC 10.5 11.7 12.6 11.1 9.3 0.8 0.9 1.0 0.9 0.9 12.5 11.3 12.0 11.7 11.5
PRU * PRUDENTIAL FINANCIAL INC DEC 10.4 11.4 8.2 4.7 1.0 0.8 0.9 0.6 0.4 0.1 14.7 16.0 10.7 6.1 1.2
SFG † STANCORP FINANCIAL GROUP INC DEC 8.2 9.0 9.3 7.6 6.3 1.6 1.8 1.9 1.7 1.4 14.2 15.0 14.7 12.7 10.4
TMK * TORCHMARK CORP DEC 15.2 15.9 15.5 14.7 14.0 3.5 3.4 3.4 3.3 3.1 15.1 14.5 14.3 14.1 14.3

UNM * UNUM GROUP DEC 3.8 4.9 NM NM 4.2 0.8 1.0 NM NM 0.9 5.4 7.0 NM NM 6.4
MULTI-LINE INSURANCE‡
AFG † AMERICAN FINANCIAL GROUP INC DEC 10.1 5.1 9.4 9.6 3.3 1.8 0.9 1.7 1.6 0.7 15.9 8.5 16.3 16.9 7.8
AIG * AMERICAN INTERNATIONAL GROUP DEC 12.3 9.7 10.3 11.4 8.2 1.5 1.3 1.3 1.5 1.0 14.9 12.6 13.2 14.2 9.9
AIZ * ASSURANT INC DEC 9.0 6.4 4.8 2.7 4.0 2.8 1.9 1.5 0.8 1.1 19.0 13.1 11.2 7.2 8.6
GNW * GENWORTH FINANCIAL INC DEC 12.0 11.6 10.4 8.3 NA 1.2 1.2 1.1 NA NA 9.9 9.3 8.0 NA NA
HIG * HARTFORD FINANCIAL SERVICES DEC 10.4 8.4 9.4 NM 6.3 0.9 0.8 0.9 NM 0.6 16.1 15.4 16.5 NM 10.1

HCC † HCC INSURANCE HOLDINGS INC DEC 16.5 11.5 12.4 11.3 15.8 4.7 2.9 2.9 2.5 3.1 18.3 12.5 13.4 11.1 12.9
HMN † HORACE MANN EDUCATORS CORP DEC 11.3 8.9 6.4 2.2 1.5 1.6 1.4 1.1 0.4 0.3 16.0 13.4 10.2 3.6 2.3
LTR * LOEWS CORP DEC 14.6 7.8 8.1 NM 5.8 3.4 1.7 1.6 NM 1.3 17.0 9.4 10.6 NM 9.4
UTR † UNITRIN INC DEC 9.2 8.4 7.9 4.2 NM 3.1 2.8 2.8 1.5 NM 12.7 12.2 12.5 6.8 NM

Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year.
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SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY

38 SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY

Price / Earnings Ratio (High-Low) Dividend Payout Ratio (%) Dividend Yield (High-Low, %)

Ticker Company Yr. End 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002

LIFE & HEALTH INSURANCE‡

AFL * AFLAC INC DEC 17-14 17-12 17-13 24-18 21-15 18 15 15 19 14 1.3-1.1 1.2-0.9 1.1-0.9 1.1-0.8 1.0-0.7
DFG § DELPHI FINANCIAL GRP -CL A DEC 14-10 13-10 12-9 12-7 15-11 11 9 8 8 10 1.0-0.7 0.9-0.7 0.9-0.7 1.1-0.7 0.9-0.6
LNC * LINCOLN NATIONAL CORP DEC 13-10 11-9 12-10 10-6 NM-50 29 30 34 31 256 2.9-2.3 3.5-2.7 3.5-2.8 5.4-3.2 5.1-2.4
MET * METLIFE INC DEC 15-12 13-9 11-9 13-9 21-13 15 13 13 9 13 1.2-1.0 1.4-1.0 1.4-1.1 1.0-0.7 1.0-0.6
PLFE § PRESIDENTIAL LIFE CORP DEC 16-11 6-4 8-5 17-6 NM-NM 24 13 18 37 NM 2.1-1.5 2.9-2.0 3.3-2.1 6.7-2.2 6.9-1.5

PFG * PRINCIPAL FINANCIAL GRP INC DEC 16-13 17-12 18-14 16-11 18-12 22 21 25 20 14 1.7-1.3 1.8-1.2 1.7-1.3 1.8-1.3 1.1-0.8
PL † PROTECTIVE LIFE CORP DEC 13-11 13-11 12-9 11-8 13-10 21 22 19 20 23 2.0-1.7 2.0-1.7 2.0-1.6 2.5-1.8 2.3-1.7
PRU * PRUDENTIAL FINANCIAL INC DEC 13-11 12-8 16-11 20-13 26-19 15 12 18 24 29 1.3-1.1 1.5-1.0 1.6-1.1 1.8-1.2 1.6-1.1
SFG † STANCORP FINANCIAL GROUP INC DEC 15-11 14-9 12-8 12-9 16-12 17 16 14 13 11 1.6-1.2 1.7-1.2 1.7-1.2 1.5-1.1 0.9-0.7
TMK * TORCHMARK CORP DEC 12-10 12-11 13-10 12-9 13-9 9 9 10 10 11 0.9-0.7 0.9-0.8 1.0-0.8 1.2-0.8 1.2-0.9

UNM * UNUM GROUP DEC 20-13 13-9 NM-NM NM-NM 18-10 24 17 NM NM 35 1.9-1.2 1.9-1.3 2.6-1.6 6.3-1.9 3.6-2.0
MULTI-LINE INSURANCE‡
AFG † AMERICAN FINANCIAL GROUP INC DEC 10-7 15-10 7-5 6-4 17-10 10 19 10 11 27 1.5-1.0 1.8-1.3 1.9-1.5 2.8-1.9 2.8-1.7
AIG * AMERICAN INTERNATIONAL GROUP DEC 14-11 18-12 20-14 19-12 38-23 12 14 7 6 8 1.1-0.9 1.1-0.7 0.5-0.4 0.5-0.3 0.4-0.2
AIZ * ASSURANT INC DEC 10-8 13-8 12-9 NA-NA NA-NA 7 9 8 0 NA 0.9-0.7 1.0-0.7 0.9-0.7 NA-NA NA-NA
GNW * GENWORTH FINANCIAL INC DEC 13-11 14-10 12-8 NA-NA NA-NA 11 11 3 0 NA 1.0-0.9 1.0-0.8 0.3-0.2 NA-NA NA-NA
HIG * HARTFORD FINANCIAL SERVICES DEC 11-9 12-9 10-7 NM-NM 18-9 19 15 15 NM 26 2.1-1.8 1.8-1.3 2.1-1.6 3.4-1.8 2.8-1.5

HCC † HCC INSURANCE HOLDINGS INC DEC 11-9 19-12 14-11 19-13 17-11 12 19 13 17 15 1.3-1.1 1.6-1.0 1.2-0.9 1.3-0.9 1.3-0.9
HMN † HORACE MANN EDUCATORS CORP DEC 9-7 12-9 15-11 39-28 86-49 18 23 32 95 150 2.6-2.0 2.6-2.0 3.0-2.2 3.4-2.5 3.1-1.7
LTR * LOEWS CORP DEC 11-8 19-13 13-9 NM-NM 14-8 6 12 11 NM 13 0.8-0.6 0.9-0.6 1.2-0.8 1.6-1.2 1.6-1.0
UTR † UNITRIN INC DEC 12-9 15-11 14-10 23-12 NM-NM 42 46 47 91 NM 4.5-3.4 4.2-3.1 4.5-3.3 7.7-3.9 6.0-3.9

Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year.

Earnings per Share ($) Tangible Book Value per Share ($) Share Price (High-Low, $)

Ticker Company Yr. End 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
LIFE & HEALTH INSURANCE‡
AFL * AFLAC INC DEC 2.99 2.96 2.56 1.55 1.59 16.93 15.89 15.04 13.03 12.43 49.40-41.63 49.65-35.50 42.60-33.85 36.91-28.00 33.45-23.10
DFG § DELPHI FINANCIAL GRP -CL A DEC 2.92 2.59 2.58 2.11 1.30 16.55 14.19 13.30 11.17 9.05 41.98-30.41 32.99-26.04 31.73-23.99 24.59-14.49 20.05-14.58
LNC * LINCOLN NATIONAL CORP DEC 5.21 4.80 4.15 4.33 0.50 13.15 24.04 22.26 18.77 15.62 66.72-52.00 54.41-41.59 50.38-39.98 41.32-24.73 53.65-25.11
MET * METLIFE INC DEC 3.90 4.11 3.61 2.60 1.64 38.43 32.08 30.28 27.10 23.75 60.00-48.00 52.57-37.29 41.27-32.30 34.14-23.51 34.85-20.60
PLFE § PRESIDENTIAL LIFE CORP DEC 1.69 3.12 2.25 1.07 (2.36) 21.70 21.29 20.29 16.66 13.59 26.31-18.89 19.75-13.81 18.99-12.29 17.93-6.00 26.30-5.78

PFG * PRINCIPAL FINANCIAL GRP INC DEC 3.67 3.04 2.24 2.23 1.77 24.28 26.09 23.67 16.03 14.78 59.40-45.91 52.00-36.80 41.26-32.00 34.67-25.21 31.50-22.00
PL † PROTECTIVE LIFE CORP DEC 3.98 3.49 3.56 3.10 2.56 15.70 30.62 30.52 28.37 24.39 50.77-42.90 45.30-37.20 43.17-33.65 34.30-24.71 33.90-26.00
PRU * PRUDENTIAL FINANCIAL INC DEC 6.50 6.57 3.52 2.07 1.36 46.13 43.48 39.92 39.66 J 37.94 J 87.18-71.28 78.62-52.07 55.62-40.14 42.21-27.03 36.00-25.25
SFG † STANCORP FINANCIAL GROUP INC DEC 3.77 3.81 3.48 2.69 1.88 24.82 24.39 23.11 20.63 17.77 55.75-40.89 53.30-35.98 41.80-29.40 31.90-23.10 30.60-22.57
TMK * TORCHMARK CORP DEC 5.20 4.73 4.32 3.75 3.19 31.40 29.49 28.18 25.39 20.91 64.59-53.91 57.50-50.05 57.57-44.61 45.75-33.00 42.17-30.02

UNM * UNUM GROUP DEC 1.25 1.74 (0.65) (0.96) 1.69 21.70 23.49 23.10 21.38 23.48 24.44-16.15 22.90-15.50 18.25-11.41 19.54-5.91 29.70-16.30
 Earnings per Share ($) (cont’d) Tangible Book Value per Share ($) (cont’d) Share Price (High-Low, $) (cont’d)

Ticker Company Yr. End 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002 2006 2005 2004 2003 2002
MULTI-LINE INSURANCE‡
AFG † AMERICAN FINANCIAL GROUP INC DEC 3.63 1.80 3.33 3.02 1.21 23.14 19.56 19.70 17.41 14.25 36.71-24.70 26.33-18.64 21.72-17.52 17.80-12.00 20.20-11.93
AIG * AMERICAN INTERNATIONAL GROUP DEC 5.38 4.03 3.83 3.55 2.11 35.77 30.13 27.39 24.39 20.32 72.97-57.52 73.46-49.91 77.36-54.28 66.35-42.92 80.00-47.61
AIZ * ASSURANT INC DEC 5.65 3.53 2.53 1.70 31.29 23.71 21.01 20.04 16.35 207.34 56.78-42.72 44.68-29.70 31.29-23.09 NA-NA NA-NA
GNW * GENWORTH FINANCIAL INC DEC 2.90 2.57 2.34 1.98 NA 24.53 23.68 21.85 NA NA 36.47-31.00 35.25-25.72 27.84-18.75 NA-NA NA-NA
HIG * HARTFORD FINANCIAL SERVICES DEC 8.89 7.63 7.32 (0.33) 4.01 53.07 45.03 42.55 35.00 35.31 94.03-79.24 89.49-65.35 69.57-52.73 59.27-31.64 70.24-37.25

HCC † HCC INSURANCE HOLDINGS INC DEC 3.08 1.78 1.63 1.13 1.13 11.64 10.45 8.42 6.68 5.70 35.15-28.51 32.95-21.31 23.17-18.35 21.39-14.87 19.30-12.74
HMN † HORACE MANN EDUCATORS CORP DEC 2.29 1.80 1.32 0.44 0.28 13.90 12.03 11.84 10.67 10.53 21.01-16.05 20.80-15.86 19.30-13.94 16.95-12.43 24.08-13.61
LTR * LOEWS CORP DEC 3.80 1.69 1.89 (1.40) 1.50 29.77 22.95 21.31 19.29 19.88 42.18-30.42 32.90-22.35 23.67-16.36 16.49-12.75 20.77-12.50
UTR † UNITRIN INC DEC 4.17 3.70 3.51 1.83 (0.12) 28.95 26.46 24.61 21.75 21.56 51.45-39.33 54.13-40.80 49.99-36.72 42.50-21.50 42.80-27.85

Note: Data as originally reported. ‡ S&P 1500 Index group. * Company included in the S&P 500. † Company included in the S&P MidCap. § Company included in the S&P SmallCap. # Of the following calendar year. J-This amount includes intangibles that cannot be identified.

The analysis and opinion set forth in this publication are provided by Standard & Poor’s Equity Research Services and are prepared separately from any other analytic activity of Standard & Poor’s. In this regard, Standard & Poor’s Equity Research Services
has no access to nonpublic information received by other units of Standard & Poor’s. The accuracy and completeness of information obtained from third-party sources, and the opinions based on such information, are not guaranteed.
39

SEPTEMBER 13, 2007 / INSURANCE: LIFE & HEALTH INDUSTRY SURVEY

Topics Covered by
INDUSTRY SURVEYS
Advertising Electric Utilities Movies & Home Entertainment
Aerospace & Defense Environmental & Waste Management Natural Gas Distribution
Agribusiness Financial Services: Diversified Oil & Gas: Equipment & Services
Airlines Foods & Nonalcoholic Beverages Oil & Gas: Production & Marketing
Alcoholic Beverages & Tobacco Healthcare: Facilities Paper & Forest Products
Apparel & Footwear Healthcare: Managed Care Publishing
Autos & Auto Parts Healthcare: Pharmaceuticals REITs
Banking Healthcare: Products & Supplies Restaurants
Biotechnology Heavy Equipment & Trucks Retailing: General
Broadcasting & Cable Homebuilding Retailing: Specialty
Chemicals Household Durables Savings & Loans
Communications Equipment Household Nondurables Semiconductor Equipment
Computers: Commercial Services Industrial Machinery Semiconductors
Computers: Consumer Services & Insurance: Life & Health Supermarkets & Drugstores
the Internet Insurance: Property-Casualty Telecommunications: Wireless
Computers: Hardware Investment Services Telecommunications: Wireline
Computers: Software Lodging & Gaming Transportation: Commercial
Computers: Storage & Peripherals Metals: Industrial

GLOBAL INDUSTRY SURVEYS

Industry/Region Industry/Region
Advertising/Asia, Europe Healthcare: Pharmaceuticals/Asia, Europe
Aerospace & Defense/Europe Healthcare: Products & Supplies/Asia, Europe
Airlines/Asia, Europe Industrial Machinery/Asia, Europe
Autos & Auto Parts/Asia, Europe Insurance: Life & Health/Asia, Europe
Banking/Asia, Europe, Latin America Insurance: Property-Casualty/Asia, Europe
Biotechnology/Asia, Europe Investment Services/Asia, Europe
Broadcasting & Cable/Asia, Europe Oil & Gas: Production & Marketing/Asia, EMEA, Latin America
Chemicals/Asia, Europe Publishing/Asia, Europe
Communications Equipment/Asia, Europe Real Estate/Asia, Europe
Computers: Hardware/Asia Retailing: Specialty/Asia, Europe
Construction & Engineering/Asia, Europe Supermarkets & Drugstores/Asia, Europe
Consumer Electronics/Asia Telecommunications: Wireless/Asia, Europe, Latin America
Electric Utilities/Asia, Europe Transportation: Commercial/Asia, Europe
Foods & Nonalcoholic Beverages/Asia, Europe

Each of the topics listed above is the exclusive subject of an issue of Industry Surveys or Global Industry Surveys.
To order an issue or receive subscription information, please call (800) 221-5277.
For information about Industry Surveys and Global Industry Surveys, please call (800) 523-4534.

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INDUSTRY SURVEYS
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