Between 1992 and 1994 alone, insurers’ share of 401(k) plans slipped from 34% to 30%, while mutual funds’ share leaped from 26% to 37%. Tax-deferred annuities sold by insurance companies fell in share of Americans’ total retirement assets to 16.61% in 1996 from its peak in 1990 of 22.56%. In individual retirement accounts, while banks’ market share fell dramatically from 61% in 1985 to 18.4% in 1996, insurance companies saw mutual funds and brokerage houses gain the fattest slices of the banks’ loss.

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.

The annuity market represent insurers’ best hopes to retain a significant share of the retirement market. In 1993, annuities represented almost 20% of the market, following IRAs’ 23.4%. Insurance companies’ share of this huge financial stash stood at almost 76% in 1993, equal to more than $1 trillion, of which about $734 billion was earmarked for retirement.

A disturbing development for insurance companies is their loss of share of revenue, from 55% of sales fees for variable annuities in 1994 to only 43% the next year. The Wall Street Journal has predicted that insurers’ share of these fees could fall to 30% by the year 2000.

For the life insurance industry, the stakes are clear. While its decline in competitiveness is not as serious as widely proclaimed, its share of the retirement market has been falling by more than 1% a year in recent years. Because its income from annuities has surpassed its income from life insurance since 1985, clearly it must continue to pursue the retirement segment. Now, however, it also needs to look to ways of solidifying and perhaps expanding its share of the 401(k) and IRA niches.

The industry was relatively quiet for more than two decades, until a 1986 article in Institutional Investor touted the double-digit performance of Julian Robertson’s Tiger Fund. With a high-flying hedge fund once again capturing the public’s attention with its stellar performance, investors flocked to an industry that now offered thousands of funds and an ever-increasing array of exotic strategies, including currency trading and derivatives such as futures and options.

Despite troubles in the last few years, the hedge fund industry continues to thrive. The development of the “fund of funds”, which is simplistically defined as a mutual fund that invests in multiple hedge funds, provided greater diversification for investors’ portfolios and reduced the minimum investment requirement to as low as $25,000. The introduction of the fund of funds not only took some of the risk out of hedge fund investing, but also made the product more accessible to the average investor.

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