Life Insurance Companies Portfolio Summary 28 212 Overview This report utilizes data from statutory financial filings made available through SNL Financial. Data reflects information on individual companies rather than consolidating subsidiaries under a single parent. We did this so we could better separate information about subsidiaries selling specific product lines. As a result, we further separated data to identify companies selling final expense and preneed products. In addition, companies were also classified by amount of assets in order to compare companies of similar sizes. All Life Co s Final Expense Co s Preneed Co s Number of Companies 79 71 26 Quartile 1 Less than $22.2M Less than $15M Less than $75M Quartile 2 $22.2M $21M $15M - $58M $75M - $61M Quartile 3 $21M - $1,923M $58M - $1,152M $61M - $1,15M Quartile More than $1,923M More than $1,152M More than $1,15M Net Yield The table below shows the median net yield in 212 for all companies, final expense companies, and preneed companies. Not only do final expense and preneed companies have a much higher median net yield than the rest of the industry, but surprisingly the smallest final expense and preneed companies also have the highest median net yield. 212 Median Net Yield All Quartile 1 Quartile 2 Quartile 3 Quartile All Companies.19% 2.37% 3.82%.65% 5.9% Final Expense.96% 5.13%.67%.9%.96% Preneed.9%.95%.6% 5.7%.9% Since the data for all companies contains a lot of outliers that can skew the median calculation, it s helpful to look at distribution graphs of the complete results. The graphs below help explain the differences in the median numbers. Final expense and preneed companies don t have nearly as many companies trending towards the lowest net yields, although they do have a much higher concentration of companies in the middle range. Note that while only 29% of all companies have net yields ranging between 5.% and 5.5%, almost half of all final expense companies and 65% of preneed companies fall into this range.
212 Net Yield - All Companies 1 12 1 8 6 2 32 1 31 38 3 1 52 7 85 1 117 6 2 5 6 2 11 212 Net Yield - Final Expense Companies 25 2 15 1 5 1 2 1 1 3 7 2 15 1 1 1 1 212 Net Yield - Preneed Companies 1 8 8 9 6 3 2 1 1
In order to better quantify the impact that low interest rates have had on companies, it s helpful to provide an historical perspective. The table below shows the average change in net yield between 28 and 212. Overall, final expense and preneed companies have managed to minimize the reduction in net yield more than all life companies. Surprisingly, the smallest preneed companies seem to have experienced the least reduction overall. Percentage Change in Net Yield 212-28 All Quartile 1 Quartile 2 Quartile 3 Quartile All Companies -18.5% -35.63% -2.89% -1.9% -8.61% Final Expense -1.59% -19.51% -13.69% -15.88% -8.8% Preneed -1.96% -8.11% -13.66% -9.59% -12.69% Once again, due to the smaller sample for final expense and preneed companies, we see the majority of their results falling in the middle range. Specifically, while 1% of all companies had a reduction in net income between % - 15%, 56% of final expense companies and 77% of preneed companies fell into this range. Types of Assets The table below shows the average percentage of assets in various classes in 212. 212 Percentage of Invested Assets Bonds Preferred Common Mortgages Real Estate Cash Policy Loans All Companies 77.67%.%.29%.%.% 6.%.15% Final Expense 83.28%.26% 1.75% 1.52%.22% 2.87% 1.56% Preneed 87.1%.3% 1.6%.%.35% 2.39%.9% Once again, the averages are lower in most asset classes for all companies because final expense and preneed produce a more limited range of responses. However, it significant to note that a higher percentage of final expense and preneed companies invest in alternative assets than the rest of the industry. The table below shows the percentage of all companies who invest in these different asset classes. 212 Percentage of Companies Investing in Different Types of Assets All Companies Final Expense Preneed Preferred % 69% 69% Common 6% 83% 77% Mortgages 39% 65% 77% Real Estate 32% 63% 69%
Bond Yields Since bonds make up the majority of companies portfolios, it s helpful to dig deeper into their bond portfolios. The table below shows the median bond yield in 212 for all life companies, final expense companies, and preneed companies. 212 Median Bond Yield 212 Bond Median Yields All Companies.31% Final Expense Companies 5.2% Preneed Companies 5.36% The higher median yield for final expense and preneed companies in this instance is not just due to a more focused distribution. The charts below show the distribution of bond yields for the different types of companies. 2 15 1 5 212 Bond Yields -- All Companies 11 13 1 22 23 28 5.%.5% 1.% 1.5% 2.% 2.5% 3.% 3.5% 65.% 131 116 89 96.5% 5.% 5.5% 6.% 2 16 1 3 6.5% 7.% 7.5% 8.% 21 More 2 15 1 5 212 Bond Yields - Final Expense Companies 11 9 1 9 2 1 1 2 3 1 1 2.%.5% 1.% 1.5% 2.% 2.5% 3.% 3.5%.%.5% 5.% 5.5% 6.% 6.5% 7.% 7.5% 8.% More 19
8 6 2 212 Bond Yields -- Preneed Companies 1 1 1 1 6 5 5 3 1 1.%.5% 1.% 1.5% 2.% 2.5% 3.% 3.5%.%.5% 5.% 5.5% 6.% 6.5% 7.% 7.5% 8.% More 1 The above charts indicate that final expense and preneed companies have a much higher concentration of companies with higher bond yields than all life companies. In fact, while only 58% of all life companies achieved bond yields of 5% or more in 212, 77% of final expense companies and 85% of preneed companies achieved this result. Bond Classes The reason for the higher yield for final expense and preneed companies becomes clear when you look at the percentage of bonds by class. The table below shows the median percentage of bond assets in each class. 212 Bond Yield by Class Class 1 Class 2 Class 3 Class Class 5 Class 6 All Companies 77.36% 19.75%.85%.%.%.% Final Expense 65.26% 31.7% 2.19%.79%.6%.% Preneed 71.83% 25.61% 1.68%.18%.2%.% The higher percentage of class 2 and class 3 bonds is further supported by a more detailed look at the data by company. The tables below show the percentage of companies holding various percentages of class 2 and class 3 bonds. Note that while 17% of all companies do not hold any class 2 bonds, only 1% of final expense and % of preneed companies exclude this class. In addition, while % of all companies do not hold any class 3 bonds, only 2% of final expense and 23% of preneed companies exclude this class. Furthermore, the final expense and preneed companies investing in these classes of bonds tend to hold a much higher percentage of them than the rest of the industry.
212 Percentage of Companies Investing in Class 2 Bonds Class 2 Bond Percentage % of All Companies % of Final Expense % of Preneed.% 17% 1% % 1.% 18% 15% 12% 2.% 16% 1% 23% 3.% 16% 2% 27%.% 19% 28% 19% 5.% 1% 2% 12% More than 6% % 6% % 212 Percentage of Companies Investing in Class 3 Bonds Class 3 Bond Percentage % of All Companies % of Final Expense % of Preneed.% % 2% 23% 2.5% 29% 3% 6% 5.% 21% 37% 19% 7.5% 6% 7% 8% 1.% 2% 3% % More than 1% 2% % % Bond Maturity Final expense and preneed companies also have a higher percentage of long-term bonds in their portfolios. The table below shows the median percentage of bond assets by maturity. 212 Percentage of Bonds by Maturity Less than 1 yr 1-5 Years 5-1 Years 1-2 Years More than 2 yrs All Companies 11.6% 28.29% 27.15% 9.39% 6.3% Final Expense 7.61% 2.5% 29.16% 1.7% 16.53% Preneed 5.62% 15.8% 31.7% 21.6% 21.7%
Specific Investments The table below summarizes the number of companies investing in different types of investments. 212 Number of Companies Holding Different Percentages of Specific Investments US Treasuries Non-US All Final Preneed All Final Preneed Percent Companies Expense Companies Expense.% 116 7 6 62 5 1 5.% 379 51 19 263 26 12 1.% 77 7 8 15.% 51 2 1 3 2.% 36 2 3 25.% 16 1 3.% 8 35.% 11 1.% 8 1 1 5.% 7 5.% 6 1 More than 5% 31 To put these numbers into context, it s helpful to look at how the percentage of companies differs around the highest concentrations of these assets. For example, the following table indicates that while 66% of all companies have between % - 5% of their bond assets invested in treasuries, 82% of final expense companies and 96% of preneed companies invest at this rate. This indicates that small face life companies invest LESS of their assets in treasuries than the rest of the industry. On the other hand, while 8% of all companies invest between % - 15% of their bond assets in municipals, only 76% of final expense companies and 58% of preneed companies invest at this rate. This indicates that preneed companies invest more heavily in municipal bonds than the rest of the industry. And finally, while 38% of all companies have more than 5% of their bond assets invested in other, 5% of final expense and 5% of preneed companies invest at this rate, indicating that these companies hold a higher percentage of other assets than the rest of the industry. 212 Percentage of Companies Holding Common Ranges of Specific Assets All Companies Final Expense Preneed US Treasuries % - 5% 66% 82% 96% Non-US % - 5% 97% 1% 1% Agency % - 5% 85% 86% 88% MBS % - 5% 3% 37% 2% Municipals % - 15% 8% 76% 58% Other more than 5% 38% 5% 5%
Investment Income Since the real impact of lower yields is felt in terms of decreased investment income, it s interesting to look at how net investment income has changed between 28 and 212. The table below shows the median change in net investment income for different sized companies. Median Percentage Change in Net Investment Income 212-28 All Companies Final Expense Preneed Quartile 1-1% 7% 29% Quartile 2-17% 7% 19% Quartile 3-1% 15% 16% Quartile 11% 15% 23% Total -7% 11% 19% This shows a marked difference between the historical performance of final expense and preneed companies compared to the rest of the industry. In fact, while only 7% of all companies increased their net investment income over the past 5 years, 65% of final expense companies and 88% of preneed companies experienced increases. Change in Invested Assets A quick look at the change in invested assets over the past five years explains some of the reason for the dramatic difference in net investment income but not all. Percentage Change in Invested Assets 212-28 All Companies Final Expense Preneed Quartile 1 1% 17% 9% Quartile 2 11% 16% 38% Quartile 3 17% 3% 29% Quartile 23% 23% 1% Total 12% 21% 39% Clearly, preneed companies have experienced a significantly higher rate of growth in assets than other companies, regardless of size. In fact, while 7% of all companies experienced an increase in net invested assets, 83% of final expense companies and 1% of preneed companies experienced growth in this area.