September 28, 1999
New York, NY

Insurers Seen Losing Ground to Financial-Service Competitors
Michael L. Albanese, Vice President, A.M. Best Co.

Insurers need to prepare now for the day when walls between financial-services competitors come down and they no longer have the protection of regulatory barriers, A.M. Best Co. Vice President Michael Albanese told insurance analysts and investors Tuesday.

Albanese spoke at the life insurance segment of the CIBC World Markets conference, co-sponsored by A.M. Best.

"There's less and less of a difference between how insurers, banks and investment broker/dealers approach customers these days," Albanese said. "As we've been told: consumers want what they want, when they want it, delivered in the way they want it."

The pace and scope of mergers and acquisitions will continue to reshape the industry and reduce the number of competitors, he predicted. "We do expect to see a substantial reduction in that number, 1,700 (U.S. life insurance companies)," Albanese said.

Property/casualty actuaries have been the first to embrace dynamic financial analysis, which aims to better measure the broad consequences of financial events on a company.

"DFA really hasn't hit the life insurance industry yet, but we believe there's value in it," Albanese said.

Albanese also detailed the elements of determining insurance-company ratings, telling the investment-oriented audience that the rating agency examines a number of questions, including:

- Where are profits generated?

- What drives them?

- How adequate are they?

- How substantial or volatile are they?

- What is the basis of strategic and financial decisions?

- How are profits and capital measured and managed?

The life insurance industry is reinventing itself, but it needs to run hard to catch up with financial-services competitors Albanese said.

"The insurance industry as a whole is losing grounds in terms of wallet-share, compared to other industries," he said.