Towers Watson (ticker: TW, exchange: NYSE Archipelago Exchange (.N))
News Release -
Life Insurance CFOs Concerned About New U.S. Statutory Regulations,
According to Towers Watson SurveyExecutives guarded -- but hopeful -- about first quarter growth in
GAAP net revenue and GAAP net income
NEW YORK, Jun 15, 2011 (BUSINESS WIRE) --
While North American life insurance chief financial officers (CFOs) are
aware that their companies will be subject to U.S. principle-based
statutory regulations, most said they have concerns regarding the new
rules -- both in terms of their readiness as well as the impact on the
competitive landscape -- according to data from the latest survey from
global professional services company Towers Watson (NYSE, NASDAQ: TW), Regulatory
and Reporting Issues.
Despite extensive educational efforts by the National Association of
Insurance Commissioners, less than 20% of responding CFOs consider
themselves very knowledgeable about the new framework, and 24% said that
key personnel within their company know very little about the structure.
The survey also found that only 60% of respondents have started
preparing for VM-20, the principle-based requirement for life reserves,
and most of these have just begun testing the impact based on existing
interpretations. The remaining 40% of responding companies have not
started planning or analyzing. Still, more than half (53%) expect to be
ready to produce results under VM-20 by 2013 (assuming an adoption date
"While somewhat alarming, these results may reflect the fact that
effective dates for many of the principle-based requirements are either
still unknown or at least three years away," said Craig Buck, Americas
Life practice leader. "It is critical for companies to evaluate the
impact of the new reserving and capital requirements well in advance of
the effective date to better understand the potential implications,
including changes to their product-specific and overall reserve and
CFOs are also concerned about the impact that the looming rule changes
will have on the life insurance competitive landscape. Seventy-one
percent said the new regulations will make results more difficult to
compare across organizations and favor large companies at the expense of
small ones, while 52% indicated that they expect the new regulations to
result in the proliferation of alternative capital structures, with many
anticipating higher capital requirements for their company.
The survey also found that many CFOs expect the new regulations to favor
foreign-owned companies at the expense of domestic companies (44%) and
protection products at the expense of accumulation products (47%).
"The main negative impact on smaller companies will be the significant
increases in costs and resources needed to comply with the new
regulations," said Buck. "All companies will incur additional costs in
order to comply, but larger companies are more capable of absorbing this
additional overhead. However, there is also the potential to gain deeper
knowledge of the business through this process. Our view is that the
ultimate winners will be companies that use the new information to
enhance their strategic decision making, regardless of size."
CFOs remain wary, but are still optimistic about revenue and net
Although their optimism has dampened from our prior survey, CFOs are
still fairly positive about first quarter growth in GAAP net revenue and
GAAP net income. Although 60% expected increases of at least 4% in new
life and annuity premiums, 31% predicted a decrease. Respondents were
much more optimistic about growth in new life premiums than in new
annuity premiums. Slightly more than 60% expected first quarter GAAP net
revenue to increase, while 11% of respondents predicted a decline. Just
under half (48%) thought GAAP net income would increase compared with
the same quarter last year, and 15% predicted a decrease.
Towers Watson's growth indices -- based on the weighted average of survey
responses -- summarizing respondents' year-over-year growth outlook have
generally climbed upwardsince 2009. However, in our most recent
survey, two of the indices fell, while one stayed the same.
The premium index remained steady at 101.
The GAAP net revenue index decreased slightly, from 107 to 105.
The GAAP net income index fell from 108 to 104.
While the indices for GAAP net revenue and GAAP net income have
declined, they still indicate positive growth. However, the premium
index remains in the "no growth" zone. (Towers Watson considers values
between 97 and 103 to be flat growth.)
"The fact that there exists an upbeat overall outlook in life insurance
revenues bodes well for the industry," said Buck. "Even though hurdles
remain, we think we should see some improvement -- albeit modest -- for
the balance of 2011."
About the survey
Twenty-five CFOs -- 39% of the program's 64 registered members --
participated in this survey. Because all of the survey questions were
not applicable to all participating companies, the respondent base
varies from question to question. The respondents are primarily CFOs
from large and midsize life insurance companies in North America; 46% of
the companies have assets of $5 billion or more, and 20% are
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global professional
services company that helps organizations improve performance through
effective people, risk and financial management. The company offers
solutions in the areas of employee benefits, talent management, rewards,
and risk and capital management. Towers Watson has 14,000 associates
around the world and is located on the web at towerswatson.com.
SOURCE: Towers Watson
Michael McNamara, +1 212-309-3669