For those unfamiliar with the terminology, a growth in assets signifies the growth of a company. The term net admitted assets is the financial term used to describe the assets of an insurance company that are permitted by state law to be included in the financial statements of the company. Even though each state has discretion over its own insurance laws, there is a general consensus by which various assets should be suitable to use when determining the solvency of the insurance company.
This growth of the UNA would not have been possible without our loyal members purchasing our products. Ten years ago, the UNA’s asset size was only $65 million. A hearty thank-you goes out to all who made this possible.
Yet another positive indicator for 2015, is that net Income (after all expenses) is projected to reach a healthy $1.7 million. As you are all aware, the last few years have been very challenging, economically and financially. The financial crisis of 2008 precipitated many new rules and regulations that are not favorable to small insurers and fraternal societies. Adaptability was and remains the key. Expense reduction was a major challenge. UNA management has successfully cutback on expenses, from the $2.9 million high recorded a decade ago in 2005, to an estimated $2.2 million in general administrative and fraternal benefit expense for the year ending December 31, which will be slightly below projections.
In 2015, management’s decision to cut back sales to increase profitability margins on annuities is reflected in the low premium income figure. A prolonged low-interest environment negatively impacts profitability of interest rate-sensitive products like annuities. The UNA will cautiously return to the market in 2016, having successfully improved the profitability margins of key products.
Analysts predict rising rates in the market by 2016. Hopefully, the rise will be slow and steady as one of the big downsides of incredibly low short-term and long-term interest rates is that life insurance companies were having a very hard time making enough nominal returns over the long haul to be able to match up their future commitments. The Federal Reserve’s low interest rates have been competing with (and hurting) life insurance and annuity markets. Now we have a report out from Moody’s suggesting that a continued rise in interest rates would be credit positive for the U.S. life insurance sector, but a rapid rise in interest rates might prove to be very bad for insurers as well.
The gradual rise in rates would allow the insurance sector’s “spread products,” like annuities, to regain popularity and reinvestment risk would decline. The flip side is that a rapid spike in interest rates could push annuity policyholders to jump over into higher-return products offered by other financial institutions or move to the stock market. Moody’s believes that fixed-rate annuities and similar products would do well with gradually rising interest rates. We shall be watching these developments carefully.
We are looking forward to the new year and wish you all a merry Christmas.