A.M. Best 2005 Review/Preview Life/Health Special Report: An Industry at a Crossroads.OLDWICK, N.J. -- A.M. Best Company's outlook for the U.S. life insurance industry is stable, reflecting the industry's improved operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before and strengthened balance sheet on both an absolute and a risk-adjusted basis. However, with the ongoing shift in the industry's product mix, the more aggressive competitive stance being taken by major players in key market segments, the increasing diligence demanded to comply with accounting and regulatory requirements Regulatory requirements are part of the process of drug discovery and drug development. Regulatory requirements describe what is necessary for a new drug to be approved for marketing in any particular country. , and the volatile reality of the global economy, A.M. Best believes the industry is at a crossroads. A.M. Best believes the industry will be challenged over the long term to sustain earnings and consistently accumulate Accumulate Broker/analyst recommendation that could mean slightly different things depending on the broker/analyst. In general, it means to increase the number of shares of a particular security over the near term, but not to liquidate other parts of the portfolio to buy a security capital -- factors that are expected to exert pressure. The key life insurance trends and issues to look for in 2005 and beyond are: --Scale will play an increasing role in many market segments, as the cost of doing business in the life industry continues to spiral spiral /spi·ral/ (spi´ral) 1. helical; winding like the thread of a screw. 2. helix; a winding structure. upward; --Earnings will be more volatile, while capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. (long term) will diminish gradually; and --Regulatory scrutiny will increase as examinations of compensation and distribution dynamics within the insurance industry continue. Health Insurance--Navigating The Changing Environment The health insurance industry continued to build core strengths through 2003 and 2004. Balance sheet strengths included robust reserves with significant redundancy, surplus accumulation and reduced debt. Capital strengthening came primarily from increased earnings accumulation, supported by pricing above cost trends, selective cost shifting and technology deployment. Top-line growth also has been strong, driven by double-digit premium yields as well as membership growth at the stronger carriers. On the credit front, the financial strength of the large, publicly traded companies publicly traded company A company whose shares of common stock are held by the public and are available for purchase by investors. The shares of publicly traded firms are bought and sold on the organized exchanges or in the over-the-counter market. has received increasing recognition from the capital markets. A.M. Best anticipates the following health insurance trends for 2005: --Cost trends to moderate while affordability remains a concern; --The direction of regulation and legislation will change as governments turn their attention to controlling insurers' behavior that is seen as inflationary in·fla·tion·ar·y adj. Of, associated with, or tending to cause inflation: inflationary prices; inflationary policies. Adj. 1. ; --Insurers will meet customer needs with new products, including consumer-driven health plans; and --Earnings will come under pressure through dampening rate increases. BestWeek subscribers can download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. a PDF (Portable Document Format) The de facto standard for document publishing from Adobe. On the Web, there are countless brochures, data sheets, white papers and technical manuals in the PDF format. copy of all full special reports at no additional cost or a combination of the PDF copies plus all related spreadsheet files of the report data at no additional cost from our Web site at http://www.bestweek.com. Nonsubscribers can download a PDF copy of the full special report (28 pages) for $75 or a combination of the PDF copy plus the spreadsheet file of the report data for $200 from our Web site at http://www.bestweek.com. Call customer service for more information, (908) 439-2200, ext. 5742. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com. |
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