At first glance, the life insurance industry appears to be in trouble as it faces the millennium. As the large baby boomer market ages, these consumers have shifted their financial focus away from life insurance and towards assuring their future comfort. Although the industry has long recognized that its future lies in more in financial products than in life insurance, it has lately been losing its share of the retirement market
First of all, retirement planning is a huge and growing market. Contrary to reports that have appeared in the past, baby boomers are saving more rapidly than their parents. And, face it, they have to: The decline of defined benefit plans, which Americans once counted on so heavily for their golden years, demands that they look to other financial instruments to protect their futures. That opens up new sales opportunities for group and individual retirement plans sold by financial companies, including insurers. And annuities, which are insurers' biggest retirement-oriented product, are growing in importance as a share of Americans' wealth. Moreover, annuities have remained stable as a percentage of retirement assets.
Meanwhile, mutual funds and brokerage firms picked up more than 43% of the depository institutions' drop in IRA market share, increasing their own share from 15.8% to 37.9% for mutual funds and 14.7% to 35.8% in the case of brokerages. Insurers' share of the IRA market actually fell from 10.4% in 1990 to 7.8% in 1996.
With these developments in mind, strategy for life insurance firms in the decade ahead need to aim at stopping their skid out of the retirement market, where they have fallen from a 22.7% market share in 1983 to 18% in 1996. 1. Retain dominance in annuities by increasing cost efficiency in delivery and holding down fees, to maintain competitiveness with other financial services. 2. Slow down loss of market share for IRA accounts. While this market has diminished in terms of new contributions, financial returns on existing IRA assets have grown to 12% of insurance company pension assets as of 1996, from 3.3% in 1983. 3. Jump with both feet into the exploding 401(k) market, with particular emphasis on pursuing the fat market for rollover accounts.
When a 1966 article in Fortune magazine highlighted an obscure investment that outperformed every mutual fund on the market by double-digit figures over the past year and by high double-digits over the last five years, the hedge fund industry was born. By 1968, there were some 140 hedge funds in operation.
In an effort to maximize returns, many funds turned away from Jones' strategy, which focused on stock picking coupled with hedging, and chose instead to engage in riskier strategies based on long-term leverage. These tactics led to heavy losses in 1969-70, followed by a number of hedge fund closures during the bear market of 1973-74.
Hedge funds have evolved significantly since 1949. Modern hedge funds offer a variety of strategies, including many that do not involve traditional hedging techniques. The industry has also rapidly grown, with recent estimations pegging its size at $1 trillion - quite the leap from the $100,000 used to start the first fund half a century ago.
First of all, retirement planning is a huge and growing market. Contrary to reports that have appeared in the past, baby boomers are saving more rapidly than their parents. And, face it, they have to: The decline of defined benefit plans, which Americans once counted on so heavily for their golden years, demands that they look to other financial instruments to protect their futures. That opens up new sales opportunities for group and individual retirement plans sold by financial companies, including insurers. And annuities, which are insurers' biggest retirement-oriented product, are growing in importance as a share of Americans' wealth. Moreover, annuities have remained stable as a percentage of retirement assets.
Meanwhile, mutual funds and brokerage firms picked up more than 43% of the depository institutions' drop in IRA market share, increasing their own share from 15.8% to 37.9% for mutual funds and 14.7% to 35.8% in the case of brokerages. Insurers' share of the IRA market actually fell from 10.4% in 1990 to 7.8% in 1996.
With these developments in mind, strategy for life insurance firms in the decade ahead need to aim at stopping their skid out of the retirement market, where they have fallen from a 22.7% market share in 1983 to 18% in 1996. 1. Retain dominance in annuities by increasing cost efficiency in delivery and holding down fees, to maintain competitiveness with other financial services. 2. Slow down loss of market share for IRA accounts. While this market has diminished in terms of new contributions, financial returns on existing IRA assets have grown to 12% of insurance company pension assets as of 1996, from 3.3% in 1983. 3. Jump with both feet into the exploding 401(k) market, with particular emphasis on pursuing the fat market for rollover accounts.
When a 1966 article in Fortune magazine highlighted an obscure investment that outperformed every mutual fund on the market by double-digit figures over the past year and by high double-digits over the last five years, the hedge fund industry was born. By 1968, there were some 140 hedge funds in operation.
In an effort to maximize returns, many funds turned away from Jones' strategy, which focused on stock picking coupled with hedging, and chose instead to engage in riskier strategies based on long-term leverage. These tactics led to heavy losses in 1969-70, followed by a number of hedge fund closures during the bear market of 1973-74.
Hedge funds have evolved significantly since 1949. Modern hedge funds offer a variety of strategies, including many that do not involve traditional hedging techniques. The industry has also rapidly grown, with recent estimations pegging its size at $1 trillion - quite the leap from the $100,000 used to start the first fund half a century ago.
