Pricing ROEs Hold Steady

By Steve Tuckey

June 16, 2005 at 08:00 PM

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Most new business written by publicly traded life insurers was priced with the same return on equity in 2003 as in 2002.[@@]

Andrew Kligerman, an analyst at UBS Securities, New York, gives that assessment in a discussion of a pricing survey conducted by Tillinghast Towers Perrin.

The survey, based on the newest available data, shows that the ROE on new business held steady at about 12% in 2002 and 2003.

Although the pricing ROEs have not declined, life insurers' ROEs are falling short of the insurers' pricing goals, Kligerman writes in a research note.

ROEs were 2 points under the 12% target for annuities, 1.4 points under the 12% target for life insurance, and 6 points under the 15% target for long term care insurance, Kligerman reports.

Median ROEs declined to 12.5%, from 14%, for variable life insurance, and to 13.5%, from 15%, for LTC insurance, Kligerman writes.

"Tillinghast attributes the drop in VL pricing ROEs to a decision by companies to bring the pricing more in line with that of other products," Kligerman writes.

Low interest rates and companies' desire to use more conservative baseline assumptions in their pricing have led to the dip in LTC returns.

But reinsurance prices are on the upswing in 2005.

"With reinsurance prices increasing, companies are looking to retain more business or to implement securitization programs," Kligerman writes.

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