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Towers Watson Life Insurance CFO Survey #33 Infographic: Effective capital management

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[Infographic] Life Insurers: Is it Time for More Strategic Capital Management? Our latest survey shows a rebounding economy is encouraging life insurers to take a fresh look at their capital management approaches and how to use capital more efficiently.

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Towers Watson Life Insurance CFO Survey #33 Infographic: Effective capital management

  1. 1. Life Insurance CFO Survey Insights — September 2014 It’s Time for More Strategic Capital Management With stocks performing at historic levels and an improving economy, life insurers are taking a fresh look at their capital management approaches and ways to use capital more efficiently. In weaker financial times following the 2008 financial crisis, insurers had been operating more tactically. Strengthening Capital Is a Work in Progress Almost 80% of respondents have seen an increase in capital/surplus over the last few years. Nearly two-thirds have redefined risk appetites or are considering doing so soon. 50% have de-emphasized the sale of capital intensive/aggressive products. The Challenge: Meeting Standards While Improving Efficiency Life insurers are challenged to find the right balance between meeting new capital standards and achieving capital efficiency. Survey participants already focus a lot of attention on managing (76%) and monitoring capital (64%), but need to do more to optimize capital efficiency (58%). Stock and Mutuals Have Different Drivers Stock and mutual insurers are motivated by different drivers, although they share a common goal of balancing capital management and efficiency. Insurers are impacted differently by capital-raising tools such as captives. As shown, the discontinuation of captive strategies would have different impacts on their companies. Discontinuing Captive Strategies Impacts Stocks and Mutuals Differently 27% 9% 9% 9% Stocks Stocks Stocks Material impact Necessitate on planned capital repricing of management strategies certain products 18% Necessitate discontinuation of certain products Captives About 33% say that discontinuing captive use will materially impact their companies. Participants may be placing less weight on captives because they view their uncertain future use as a capital-raising impediment (27%). Capital fungibility A third expect to reallocate capital, and 21% to streamline legal entities in the next 12 months. But 30% and 49%, respectively, plan no action to reallocate capital or streamline entities. Third-party reinsurance Third-party reinsurance and revised product offerings will continue as top methods of capital raising/ management over the next 12 months. However, 40% say cost and availability may stand in the way. Reserve financing/ Other securitizations Many expect to see the capital-raising environment improve for excess reserve financing transactions (32%) and other securitizations (47%), while deterioration remains a concern. Economic capital Just over 75% either currently calculate or plan to calculate economic capital in the next 12 months. The total rises to 85% when those considering it are included. Best Practice: Use Multiple Capital Metrics Forward-thinking life insurers recognize that stand-alone capital management measures that worked in a less complex insurance environment are no longer sufficient. Combining multiple strategies and metrics is the best way to balance capital strength with efficiency and assure stakeholders they are financially sound. 18% Mutuals Mutuals Mutuals The Tools: Who’s Using What Tools What Participants Say Want to learn more? Contact your local Towers Watson consultant.