# **I. INTRODUCTION**

The economic and social functions of life insurance companies in the United States are aimed at providing financial security to individuals and families in two basic ways. First, life insurance offers protection against the financial risk of premature death of a family member and the consequent loss of income to the surviving family. Second, annuities and pension plans protect against the risk of outliving other forms of income, particularly after retirement from active employment. In serving these needs, life insurance companies are a major source of long-term funds to the domestic capital market through the investment of their reserves in a wide range of financial outlets.

Total assets of U.S. life insurance companies were $1,408 billion at the end of 1990, equal to 26 percent of GNP. Of these, roughly one third arose from policy reserves behind life insurance and two thirds were reserves against annuities and pension plans. Such assets rose by $108 billion in the year 1990, with the bulk of these net new funds made available to the financial markets through investment in long-term corporate debt obligations, mortgages on commercial real estate, U.S. Treasury and federal agency securities, and corporate equity issues.

Life insurance was owned by 81 percent of American households in 1990 with an average amount of coverage of $121,400 or roughly three times the size of average famnily income. The face amount of life insurance in force was $9.392 billion or 174% of GNP-an increase of 8.0 percent for the year.

Death benefits on life insurance policies were $25 billion in 1990, while another $18 billion was paid to policyholders in surrender values and $12 billion in policy dividends. Payments on annuities with life companies were just under $33 billion.

Premiums paid on life insurance are currently 2 percent of disposable personal ini;ome (DPI), down from a 3 percent level twenty years ago. An upsurge in annuity purchases has more than offset this declining trend, however, with annuity considerations (individual and group) rising from 0.5 percent of DPI in 1969 to 3.0 percent in 1989. Thus, total life premiums and annuity considerations have risen to 5 percent of DPI, compared with 3.5 percent 20 years ago.

The life insurance industry in the United States has long played a major role in generating savings ,Vailable to the money and capital markets. Federal Reserve data show a total of $629 billion in credit provided by all types of institutions and investors in the U.S. capital market in 1989. Life insurance companies supplied $98 billion or 16 percent of the total in that year, second only to commercial banks which supplied 27 percent of the total.

The broad dimensions of the U.S. life insurance and pension field in 1989 are shown in summary form in Table 1.

At the latest count, there were 2,343 life insurance companies in the United States, of which about ',200 companies are currently active; the others have been legally chartered but do not carry on current operations. Just under half of total industry assets are held by the 118 mutual companies while stock companies, though much larger in number, represent the remaining half of industry assets. The three largest companies are organized as mutuals; together, they account for 23 percent of total industry assets. The ten largest life insurance companies, both stock and mutual, hold 43 percent of total industry

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