The U.S. is the biggest market for life insurance in the world and accounts for one-fifth of total premiums written globally. Life premiums in the U.S. stand at $530 billion, and excluding deposits, income from premiums is around $130 billion.  Although the industry was hit hard by the 2008 financial crisis, it is now on the road to recovery.
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Premiums in the country fell by 15% in 2009 but have increased by 6% in the last two years.   There are more than 1,000 life insurance companies operating in the U.S. with close to $5 trillion in invested assets making the industry one of the largest sources of investment capital in the country.  We expect life insurers’ income from premiums to grow to $166 billion by the end of our forecast period. In this article, we analyze some key aspects of the U.S. life insurance industry.
Who Regulates Insurance In The U.S.?
Each U.S. state has its own regulations governing life insurance, but at the national level it is regulated by the National Association Of Insurance Commissioners (NAIC). The organization is a collaboration between authorities from each state and helps in coordination and establishing standards, including risk-based capital requirements. Following the 2008 financial crisis, President Obama passed the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2010. This established the Federal Insurance Office and the Financial Stability Oversight Council (FSOC) to monitor the insurance market in the U.S.
Who Are The Major Players In The Market?
According to the National Association Of Insurance Commissioners, MetLife (NYSE:MET) is the market leader in terms of direct premiums with a market share close to 10%.  Aflac Group comes is next in the list of life insurers with a market share of 7% followed by Prudential Financial (NYSE:PRU) with 6% market share. Northwestern Mutual and New York Life Group come at number four and five, respectively. John Hancock, the U.S. arm of Canadian insurer Manulife (NYSE:MFC), is seventh in the list of life insurers with a market share of 3.25% while AIG (NYSE:AIG) lies outside the top 10 in 11th spot with 2.21% market share.
The Products Offered
There are four major lines of life insurance products offered in the U.S.: 
Term life insurance provides coverage for a limited period of time at a fixed payment rate. The beneficiary gets the death benefit only if the insured dies within the insurance term. Annualized premiums in this line of product did not vary through 2012 and remained consistent with the 2011 levels.
Whole life insurance, as the name suggests, offers coverage for the whole life of the insured. However, the policyowner has to make fixed premium payments usually on an annual basis. Annualized premiums in this line of product grew by 7% in 2012.
Universal life insurance is similar to whole life insurance, but the policyholder has greater flexibility over the payment of premiums. However, the cost of insurance charge is debited each month from the cash value of the policy while an interest between 2% and 4% is credited to the cash value. Annualized premiums for this line grew by 8% in 2012.
Variable universal life insurance is a variant of the universal life insurance product where the cash value of the product can be invested in separate accounts chosen by the policy owner. Annualized premiums for this product remained constant through 2012.
What Is The Forecast For The Industry?
The U.S. economy is still recovering from the financial downturn of 2008. Following negative GDP growth in 2008-09, the recovery has been sluggish at best given the amount of stimulus the government has provided to spur growth.  The unemployment rate recently hit a four-year low at 7.7% but is still a long way off the 4.7% mark that the country maintained before 2008.  As a result, the real disposable income per capita has declined.
Measured in terms of chained 2005 U.S. dollars, the real disposable income per capita was around $34,600 before the onset of the financial crisis on a steady growth track since the 1950s. But the figure declined to about $31,000 in 2010 and has since been recovering, albeit slowly. The per capita disposable income in January 2013 was $32,483.  With less disposable income, the U.S. populace was less inclined to make discretionary purchases like life insurance. According to our analysis, the life insurance penetration, measured by taking premiums as a percentage of GDP, fell below 1% in 2010 but has since recovered to the historical average of 1.1%. (Note: we have excluded deposits from premiums in our analysis.)
The U.S. economy is governed by internal as well as external macro-economic factors. The prolonged sovereign debt crisis in Europe and the recovering U.S. markets might take a toll on growth in the coming years. The GDP growth rate is expected to be around 2.3% in the next five years.  However, observing the positive changes in the unemployment rate and the stability in disposable income, we can safely assume that life insurance penetration will remain around the historical average of 1.1%. Extrapolating the growth to life insurance premiums of $127.5 billion observed in 2012, we arrive at a figure of $166 billion by the end of our forecast period. You can modify the interactive chart below to gauge the effect a change in forecast would have on our price estimate for AIG.Notes:
- Life Insurer’s Fact Book, American Council of Life Insurers [↩]
- Swiss Re’s World Insurance [↩]
- LIMRA [↩]
- Facts About the U.S. Life Insurance Industry [↩]
- National Association Of Insurance Commissioners Life And Fraternal Insurance Industry [↩]
- Individual Life Insurance Growth Rates by Product [↩]
- GDP growth (annual %), The World Bank [↩]
- Labor Force Statistics from the Current Population Survey, Bureau of Labor Statistics [↩]
- Real Disposable Personal Income: Per capita, FRED [↩]
- Comparison of Base Scenario with Optimistic and Pessimistic Scenarios, 2013 – 2025 (January 2013) [↩]