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US Life And Annuity Industry To See Higher Premium Growth

Ultra-Fast Broadband Services Remain A Niche Offering In Latin America

Energy

Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

Five Cheapest Triple-Play Bundles In Key Countries In Western Europe

Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Insurance
US Life And Annuity Industry To See Higher Premium Growth

Highlights

S&P Global Market Intelligence's 2018 US Life and Annuity Insurance Market Report projects an acceleration of growth in direct premiums and considerations in 2018 as the industry is poised to benefit from the removal of a key regulatory overhang.

Aug. 09 2018 — Regulatory, legislative and judicial changes will impact growth in direct premiums and considerations in 2018, according to S&P Global Market Intelligence's 2018 US Life and Annuity Insurance Market Report.

Sluggish sales of individual annuities in 2017 resulting from uncertainty regarding the implementation of the US Labor Department's fiduciary rule and a March ruling by a federal appellate court set the stage for favorable top-line comparisons in 2018 and 2019. Net premiums and considerations in several lines will show the effects of at least one US-domiciled carrier's reaction to the Base-Erosion and Anti-Abuse Tax, or BEAT, component of the December 2017 federal tax reform.

S&P Global Market Intelligence projects overall growth in direct life, annuity and accident and health premiums and considerations of 4.3% in 2018, up from expansion of 1.3% in 2017. By product segment, we project that ordinary individual and group annuities will see combined growth in direct premiums and considerations of 4.2% in 2018, compared to a decline of 3.1% in 2017. This reflects increased optimism for sales following what had been, in some cases, historically low results.

Historical results are based on the aggregation of data at the line-of-business level reported by US-domiciled entities that file life statement blanks with the National Association of Insurance Commissioners. The analysis excludes select entities that generated the vast majority of their business from outside of the United States.

Continued strong growth in direct accident and health premiums written by life statement filers also contributes to the overall outlook for the sector's expansion, offsetting a normalization in growth rates for the life insurance business. S&P Global Market Intelligence projects growth of 6.9% in direct accident and health premiums and 1.9% in direct ordinary and group life premiums as compared with rates of expansion of 6.7% and 4.5%, respectively, in 2017.

Nowhere to go but up

The LIMRA Secure Retirement Institute forecast growth of between 5% and 10% in total annuity sales in 2018 and up to 5% in 2019. Its 2018 outlook assumes higher sales of a range of products, including indexed annuities and annual variable annuities.

Individual annuity sales as measured by a LIMRA Secure Retirement Institute survey declined by 8%, overall, in 2017, with weakness in trends among both variable and fixed products. Direct first-year and single premiums and considerations in the ordinary individual annuity business as reported on annual statutory statements fell by 9.5% in 2017 — the largest reduction in that measure of growth in at least the past 10 years.

Though direct ordinary individual business volume grew less than 0.6% in the first quarter of 2018, the expansion was noteworthy in that it represented the first time in two years that premiums and considerations did not decline. Four times during that eight-quarter stretch, direct premiums and considerations fell by double-digit percentages.

A split March decision by the Fifth Circuit US Court of Appeals effectively dealt a death blow to the Labor Department's fiduciary rule, months after President Donald Trump's administration signaled that it would not actively enforce certain key provisions. The industry had been particularly opposed to the rule's best-interests contract exemption that conferred a private right of legal action related to commission-based products.

While certain states have indicated an interest in reviving elements of the rule and the SEC has set out to draft its own best-interests regulation, the industry has taken some comfort that the federal agency will pursue a more collaborative approach to rulemaking in seeking to preserve customer access to a range of retirement savings products and services.

To the extent regulatory uncertainty remains, the anemic sales trends of mid-2017 offer easy comparisons from which the industry should show significant expansion.

Other lines of business in which 2017 direct premiums and considerations provide either easy or challenging comparisons include group life and other accident and health. In group life, the 2017 results of Zurich American Life Insurance Co. and Nationwide Life Insurance Co. were significantly elevated by bank-owned or corporate-owned life insurance transactions. Group life direct premiums increased by 9.4% during the year after they fell by 3.6% in 2016.

In the other accident and health line, meanwhile, two UnitedHealth Group Inc. subsidiaries exited significant portions of their individual health businesses at the start of 2017. Direct other accident-and-health premiums increased by less than 0.2% on an industrywide basis in 2017, but would have expanded by 3.7% when excluding those subsidiaries' results.

Net noise

Growth in net premiums and considerations is subject to considerably more uncertainty given the extent to which one-off affiliated and unaffiliated reinsurance transactions may take business into or out of the scope of US statutory data. Year-over-year changes in net premiums and considerations have ranged from a decline of 8.9% to an increase of nearly 15.9% in the last five years. The 2017 decline was just 0.3% across life, annuity and health business lines despite a series of multibillion-dollar recaptures and cessions.

The combination of Hannover Life Reassurance Co. of America's reaction to the BEAT and the reinsurance of legacy business by life units of American International Group Inc. has already created volatility in the industry's assumed and ceded premiums in 2018. Hannover Life restructured certain of its retrocession agreements to avoid what it characterized as the "severe surplus strain" that would have resulted from its transactions with foreign affiliates through the new tax. And a new Bermuda affiliate assumed the AIG legacy business, taking it outside of the scope of US statutory data, as the group reported ceded premiums of $31.93 billion for the first quarter and total net premiums of a negative $27.36 billion in the life, annuity and accident and health lines.

Given the prospects for other large life groups to use reinsurance, M&A or some combination of the two to address their legacy exposures, net premium trends are likely to remain a moving target and the source of considerable volatility in the industry's future results.

S&P Global Market Intelligence client? Click here to login and read the full 2018 US Life and Annuity Insurance Market Report.

The projections represent the product of a sum-of-the-parts analysis of line-of-business-level results for private carriers in the US life, annuity and health industry modeled largely on Exhibits 1 and 2 to annual statutory statements. While S&P Global Market Intelligence does not project results for individual carriers or life groups, certain significant company-specific activities help inform the line-of-business level outlook. In addition, the outlook attempts to exclude the impact of select one-off events that involved the on-shoring or offshoring of business to such an extent that it dramatically impacted industry level financials on a historical basis. Macroeconomic inputs reflect consensus estimates compiled by The Wall Street Journal and the outlook published by the Congressional Budget Office in January. The outlook is subject to change periodically and as events warrant.

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Technology, Media & Telecom
Ultra-Fast Broadband Services Remain A Niche Offering In Latin America

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Oct. 18 2018 — Increasing availability of triple-digit advertised speeds, elimination of lower speed packages, free broadband speed upgrades and migration from copper to fiber are paving the way to faster broadband speeds in five major Latin American markets. However, 38% of broadband households still subscribe to packages with speeds under 10 Mbps.

Kagan analyzes reported fixed broadband speeds in the top five broadband markets in Latin America in 2017 — Argentina, Brazil, Chile, Colombia and Mexico — in terms of subscriber numbers. Broadband speeds are divided into three tiers, with the lowest tier defined as speeds below 10 Mbps, the middle tier as speeds in the range of 10 Mbps to 100 Mbps and any speed above 100 Mbps considered the highest tier. Our estimates are based on regulator data, which is used to determine the markets' reported speeds.

Broadband households with 10-100 Mbps speeds dominate in the five major Latin American markets, with 59.6%, or 34.1 million, of the 57.3 million subs. This tier is followed by households with speeds below 10 Mbps with a 37.9% share, while speeds above 100 Mbps remain a niche offering with only 2.5% of broadband households among the five chosen markets.

Diving deeper into each of the five markets, the majority of the broadband households in Brazil, Mexico and Chile have speeds in the 10-100 Mbps tier, while most broadband households in Argentina and Colombia have speeds below 10 Mbps. Chile has the highest percentage of highest tier households due to local operators migrating customers to higher speeds.

Out of the estimated 7.6 million residential fixed broadband households in Argentina, we estimate 53.5% or 4.1 million subscribers are in the lowest tier at year-end 2017. The middle tier closely follows this with 3.5 million subscribers, leaving households above 100 Mbps as the least penetrated speed with 11,695 subs as of 2017. In the lowest tier, 74% is made up of households with 6 Mbps speeds. Across the middle tier, most households subscribed to speeds in the 10-50 Mbps range. Almost all of the broadband households in the highest tier have 150 Mbps speeds.

As for Brazil, we estimate 26.2 million broadband households are composed of 9.3 million in the lowest speed tier, 16.5 million in the middle tier and around 417,000 subscribers in the highest tier. Aside from being the largest ISP in terms of market share, Claro Brasil also dominates both the middle and highest tiers through its cable service, which operates under the brand name NET. In the middle tier, 15 Mbps is the most penetrated speed with 5.1 million customers, of which 2.7 million are from NET. A huge chunk of the highest tier is in 120 Mbps, with around 317,000 households subscribed to NET.

Despite being the smallest among the five markets, Chile has the most number of broadband households subscribed to speeds above 100 Mbps, as subscribers were recently migrated to higher broadband speeds, particularly from VTR. VTR increased its broadband speeds from 100 Mbps to 120 Mbps in February 2017 with no additional charges.

Unlike the rest of the five markets, dominant speeds per speed tier in Colombia lead by a wide margin, with 5 Mbps, 10 Mbps and 150 Mbps being the most popular contracted speeds in each tier. In the lowest tier, 5 Mbps is dominant with 58.9% or almost 2.7 million homes, around 1.4 million of which are Claro Colombia subscribers. Claro Colombia dominates the middle tier as well, with around 490,000 of its subscriber base in the 10-100 Mbps spectrum, concentrating 70.8% of the middle tier. In the highest tier, 98.8% or 914 households have 150 Mbps, the majority coming from ETB and a very few households from Azteca and Claro Colombia.

Mexico has the highest middle tier percentage among the five markets, with 78.4% or an estimated 11.7 million out of 15 million households subscribed to speeds from 10 Mbps to 100 Mbps. The lowest tier comes next with 19.7% or 2.9 million broadband homes, around 1.1 million of which are from the combined subscriber base of Grupo Televisa SAB's subsidiaries — Cablecom, Cablemás, Cablevisión México, Cablevisión Red SA de CV (Telecable), TVI and Sky México. The highest tier only has 2%, or around 288,000 households with speeds above 100 Mbps.

Average speeds: Ookla and Netflix

Average speeds reported by Netflix Inc. and Ookla should not be taken as the true speed measure of the mentioned markets. Netflix calculates the average prime-time bit rate used when streaming Netflix content across all end-user devices, regardless of the simultaneous internet activity performed on a single connection. Ookla, on the other hand, is limited to reporting broadband connections that actively performed speed tests on its platform.

Demand for higher broadband speeds is increasing as more people prefer to watch content over streaming services. According to Netflix's ISP Index, among the chosen five markets, Chile has both the highest country average and ISP speed.

In Argentina, cable operator TeleCentro had the highest average speed at 3.61 Mbps, while Telefónica Argentina's Speedy was at the lowest with 2.38 Mbps. TeleCentro's broadband plans range from 30 Mbps to 1 Gbps, causing it to reach higher average speeds compared to other providers. On the other hand, Speedy only offered plans from 3 Mbps to 10 Mbps in December 2017.

Netflix ranks TIM Participações SA as the ISP with the highest average speed at 3.12 Mbps in Brazil, while Telefónica Vivo falls at the bottom with 2.16 Mbps. Vivo Internet (DSL) and Vivo Fibra (fiber) were ranked separately but are both under Telefónica, which might have affected the average speeds ranking of Telefónica as a whole. Given the FTTH upgrades planned by Brazil's major operators, broadband speeds are expected to increase, driving penetration in the middle and highest broadband tiers.

GTD Internet's Fiber broadband ranks as the fastest ISP in Chile with 4.02 Mbps, which is also the highest ISP speed among the five major Latin American markets. Again, separating the average speed from its DSL counterpart might have affected the total average of the ISP. Fixed wireless provider Entel Chile, aside from having the lowest number of broadband subscribers in Chile among the operators analyzed, also ranks last in the average speeds with 2.45 Mbps as of 2017.

According to Netflix's ranking, Claro Colombia leads the average speeds only by a few points above ETB, with 2.99 Mbps and 2.9 Mbps, respectively. The lowest is DIRECTV Colombia's fixed wireless broadband service with speed offerings ranging from 2-10 Mbps in 2017.

Grupo Salinas' Total Play Telecomunicaciones SA de CV has the highest Netflix average speed in Mexico at year-end 2017, given its full fiber network. Average speeds from providers vary between 2-4 Mbps, except for Axtel's fixed wireless service Acceso Universal. However, separating the average with Axtel's Xtremo fiber service might have affected the company's overall average speeds ranking.

Although Ookla's Speedtest Global Index also shows Chile as the leader in average broadband speeds, it lists Colombia as the market with slowest average speed.

The availability of faster broadband speeds is also attributable to the increasing number of operators deploying their own fiber networks. After the initial trend of fiber rollouts, Kagan forecasts FTTH revenue in the Caribbean and Latin America is set to experience staggered but stable growth until 2022 as ISPs hold off spending until high-end fiber networks become more available, hence incurring lower expenses.

Despite the availability of broadband packages with higher speeds, reported speeds reached remain low. As internet service providers are slowly getting past the hurdles of network upgrades and deployments, the challenge is how to come closer to the maximum advertised speeds in their broadband plans.

Global Multichannel is a service of Kagan, a group within S&P Global Market Intelligence's TMT offering. Clients may access the full article, with detailed breakdown of speed tiers and Netflix ISP average speeds per country, as well as year-end 2017 data available in Excel format, by clicking here.

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Steve Piper shares Power Forecast insights and a recap of recent events in the US power markets in Q4 of 2017. Watch our video for power generation trends and forecasts for utilities in 2018.



Five Cheapest Triple-Play Bundles In Key Countries In Western Europe

Highlights

Western Europe’s biggest markets represent some of the region’s cheapest triple-play (TV, broadband and fixed telephony) bundles.

Germany, France and the U.K. are the three biggest media markets in Europe by revenue and by total GDP, yet they host some of the cheapest bundles

Scale and the intense nature of competition in those markets are key factors affecting pricing.

Oct. 12 2018 — Western Europe’s biggest markets represent some of the region’s cheapest triple-play (TV, broadband and fixed telephony) bundles. Germany, France and the U.K. are the three biggest media markets in Europe by revenue and by total GDP, yet they host some of the cheapest bundles. Scale and the intense nature of competition in those markets are key factors affecting pricing. Austria is the only nation featured in our cheapest bundles table that is not one of the big five markets in Western Europe. Bundling, incidentally is not popular everywhere: in the Nordics – Europe’s most advanced and competitive sub-region – operators are less inclined to bundle their products with the lack of interest in fixed telephony impacting bundling strategies.

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Technology, Media & Telecom
Trading Of US Linear TV Advertising Shifting To Programmatic Trading

Oct. 08 2018 — Both buyers and sellers of traditional linear TV advertising, not including connected TV or over-the-top video, are moving toward the adoption of programmatic trading. In 2017, Kagan estimates that $690 million or 0.9% of total linear TV spend was traded programmatically. Within the next five years, that figure is expected to climb to $9.76 billion or nearly 12% of total linear TV advertising revenue. MVPDs are forecast to trade the greatest percentage of their ad inventory programmatically in 2022 with 30% of ad revenue from programmatic trading.

Kagan defines programmatic trading as being automated and data-enhanced, not just one or the other. Trading may be through a private or open marketplace and does not have to be through an auction, which is more common in digital video advertising.

There are several issues holding participants back from programmatic trading. Unlike digital programmatic marketplaces, where there is a seemingly unending supply of ad inventory, linear TV has a finite supply. Demand for TV inventory exceeds the supply, so there is still an attitude of "If it isn't broken, don't fix it." TV ads are also bought well in advance, not immediately.

While many agencies have experimented with the programmatic trading of linear TV, not all are on board. Many of the advertisers and agencies are interacting directly with the supplier platform rather than going through a demand-side platform, or DSP, today. In their experiments, the agency needs to use separate platforms to aggregate inventory and tie it together, which is a lot of work.

The lack of inventory is one factor holding back programmatic trading. The only way it takes off is to make linear TV inventory available in some type of buyer platform that can combine the various supply platforms. It is even more complicated when the buyer wants to bring in connected TV (OTT).

Agencies do like the automation capabilities of programmatic, particularly where the process takes a lot of time. An algorithm may do better in areas such as weighting estimation, the first pass at scheduling and the negotiation process as well as postings and billings. The process of buying inventory is not difficult, but computing where a buyer will be able to find its preferred audience is. Therefore, interest in automating the planning and analysis to find an optimal audience is high.

We forecast a gradual uptake for programmatic trading with continued testing in 2018. Broadcast stations and networks, cable programmers, and MVPDs need to add more inventory to programmatic platforms before agencies begin using it in earnest. It will take time for all parties to feel comfortable transacting in a new way.

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