Edition 15 - Life at the halfway mark

Welcome to Edition 15.

The days are long, but the years are short. We’ve passed the mid-point of 2024 and I’ve found myself looking back at the performance of the US Life sector this week. In many respects it’s been a very benign environment for life insurance businesses:

• Steady credit markets: BBB-rated bond spreads down 15 basis points (bps)
• Modestly rising interest rates: 10-year Treasury yield up 30 bps, 20-year Treasury up 40-50 bps
• Very strong equity markets: S&P 500 +18%, driven principally by Tech +33% with more modest returns elsewhere – Financials +10%, Industrials +6%
• Inflation stable and running at ~3.5%
• Forward-looking measures of equity market volatility (VIX) modestly down (from 13.2 to 12.4)
• Steady growth in employment: Nonfarm payrolls up 0.6%
• Some headwinds for those with large Japanese books in FX rates : JPY:USD down 13%

Against this backdrop, the chart below shows total shareholder returns year-to-date (through July 10, 2024) for large US public life insurers. Not surprisingly, the large retail annuity players generally outperformed the rest of the sector benefiting from the conditions described above.

Total shareholder returns year-to-date for large public US insurers

Perhaps more interestingly, the chart below marries year-to-date total shareholder return (vertical axis) with forward price-earnings ratios as an indicator of growth outlook. I hadn’t done the analysis before but was fascinated to look at where these price-earnings ratios stand for the largest 500 US publicly quoted companies.? The vertical dashed lines on the chart show the 5th, 25th and 50th percentile forward price to earnings (PE) ratios for that universe (the 75th percentile PE is 30x; the 95th percentile is 60x). Of the 17 companies shown, 11 have forward price-earnings ratios in the lowest 5% of the largest 500 public companies; 5 companies fall between the 5th and 25th percentile, one lies between the 25thand 50th. None are above are either the median or average.? Clearly, we in the industry have a lot to do in order to convince investors that there’s a bright future ahead.

Against this backdrop, the industry continues to be focused on a range of topics:

• Development of the asset management-led insurer model: 1) Use of Bermuda reinsurers/sidecars to transform capital-intensive approaches into capital-light/fee-based revenue models and as an enabler for growth in third-party asset management businesses. 2) Growing globalization in the asset management-led insurer model, as established players look for growth opportunities outside the US with a particular focus on Japan, the wider Asia-Pacific region, and European markets
• A growing focus (in some cases prompted by upcoming CEO rotations, and in other cases as a result of strategic refreshes/upcoming investor days) on where organic growth will come from going forward — with an emphasis on financial wellness, retirement income drawdown, wealth/advisory channels globally - and how to organize and mobilize to pursue it
• AI, AI, AI with now a pivot toward how to realize efficiency and other gains at scale. While there’s lots of discussions we have yet to see really transformative moves emerge though building conditions
• Strategic financial resource management is seeing significantly more attention resulting in transformation in Finance/Actuarial functions as clients look to align internal capabilities with a rapidly evolving external competitive landscape and shift their capabilities, processes, and technologies to enhance more rapid and insightful decision-making

?That’s it for this issue — let’s see what the rest of the year holds!

Oliver Wyman latest releases and events

• Our Oliver Wyman team is ringing the NYSE opening bell on this Thursday, July 11, 2024. Watch us live from the New York Stock Exchange at 09:30 EST as we celebrate the launch of a new Oliver Wyman Forumand NYSE report: The New Growth Agenda. In our report, over 100 CEOs of NYSE-listed companies share how they are navigating emerging shifts in geopolitics, trade, technology, and people. Watch live here:https://owy.mn/3xSXd5C
• Europe needs a bolder plan for capital markets. In a new opinion piece for the Financial Times, our colleague Huw van Steenis? examines the need for deeper capital markets in Europe. Asset managers can be drivers or passengers on this journey. As drivers, investment firms can maximize their unique position at the intersection of capital, risk, and advice to build better pipes through which more European private savings can flow — if they are willing to change their business structures and embrace more pan-regional operating models.
• According to the Celent Dimensions survey, data platforms and data management top the list of technology priorities for corporate banking, followed very closely by cybersecurity. In contrast, in 2023, data and cybersecurity were low-ranked priorities, with data platforms not even making the top 10 technology priorities. Read more here from Celent, a business of Oliver Wyman.

Reinventing Insurance Newsletters

In this newsletter, my aim is to pick topical issues and news and relate them to the macro issues happening in the insurance industry. I publish biweekly and look forward to your thoughts and comments.

Click "Subscribe" to receive a notification and an e-mail when new articles are published.

• Edition 1: A look at the macro shape of the Insurance Industry
• Edition 2: A look at the latest insurance macro trends
• Edition 3: A Look at Personal Lines P&C
• Edition 4: Become an Asset Management-Led Insurer
• Edition 5: P&C market cycles, underwriting challenges, and relative sources of profitability
• Edition 6: Private equity’s rapid growth in the insurance sector
• Edition 7: CIAB Meeting Dispatches
• Edition 8: Asset-owned Insurer moves (US & UK); Growth opportunities in Asset & Wealth Management
• Edition 9: Risk Fluidity, Earnings notables
• Edition 10: Macro views and growth trends
• Edition 11: Leadership agendas for 2024
• Edition 12: Surplus lines revolution: Exploring the growth in non-admitted insurance markets
• Edition 13: The trillion-dollar insurer
• Edition 14: Escape trajectories

Mick Moloney is a Partner at Oliver Wyman, based in New York. He is Global Head of Insurance & Asset Management and Managing Partner for Oliver Wyman Actuarial. In combination, these groups include over 700 colleagues globally dedicated to providing advice to Life, P&C, and Health insurers, asset managers, and private capital sponsors across strategy, operations, technology, finance, risk, and actuarial disciplines.

Mick spends his time working with leading insurers, asset managers, and advisory firms on a range of strategic and execution topics with a particular focus on growth, innovation, and efficiency in retail and institutional markets. He’s passionate about growth and reinvention in the industries he serves, with a strongly held belief that while each is facing disruption and dislocation, there are massive unmet needs which provide the prospect of a bright and vibrant future.