Study: life industry could top $1.6 trillion.

The global life insurance industry can generate as much as $1.6 trillion in shareholder value over the next 10 years, a scenario that will put pressure on life insurers to plan aggressively for growth, according to a study by consultancy Mercer Oliver Wyman.

The 49-page study, Going on the Offensive--The $1,600 Billion Prize, predicts that the life industry's growth rate will outpace the gross domestic product by 50% and also will outpace other sectors of insurance. The findings are based on analytical studies by Mercer Oliver Wyman experts, as well as interviews with life insurance executives worldwide.

Among the key findings:

* North America, the largest life market, will account for 42% of the $1.6 trillion in potential shareholder value;

* Europe will account for about 38% of the total value over the next decade;

* Regional insurers in Canada, being small by comparison, need to be broad-based players;

* Japan accounts for 12% of total global value, but growth prospects are limited;

* European insurers have a stronger position in the long-term savings market, driven by a guaranteed-based value proposition and tax incentives;

* Only the U.S. market is big enough to support insurers that can focus on specific niches, making the United States an attractive but cautious investment opportunity; and

* Some new product lines, such as postretirement products, are expected to grow significantly.

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

Mercer Oliver Wyman, part of Mercer Inc. a wholly-owned subsidary of Marsh & McLennan Cos., sees competition for shareholder value splitting the life industry into three components--"a handful of global behemoths" that will dominate the market and increase their share of value creation from 20% today to 35% in 10 years; regional retail-wholesalers who survive a wave of restructurings and consolidation that will see the overall market share of life insurers fall from today's 50% to 35%; and a rising number of specialists, focusing on niches.

Split of Personal Financial Assets By Asset Class, 2004 (%)

Maturing markets produce a shift away from bank deposits and liquid products, toward home equity and more sophisticated investment products.

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Source: Mercer Oliver Wyman, Going on the Offensive--the $1,600 Billion Prize, The Future of Life Insurance, June 2004.