Reported net income for Moody’s-rated U.S. publicly traded life insurers increased by 188 percent in Q3 2013 when compared to the prior-year period. Net income increased in Q3 2013 to $6.4 billion compared to $2.2 billion in Q3 2012, with the increase lead by large earnings at AIG’s Retirement and Life segment ($1.24 billion), Prudential ($981 billion) and MetLife ($942 billion), according to new financial figures released by Moody’s.
“The increase was driven by positive performance all around, although the three largest players contributed half of the gains,” the ratings firm said.
The firms showing the most individual year-to-year net income growth for the third quarter were Ameriprise (121 percent), AIG’s Retirement and Life segment (40 percent) and Protective (54 percent).
“Year-over-year comparisons of MetLife’s and Prudential’s net income are less comparable because of a combination of one-time charges and certain non-economic items in both periods,” the ratings firm added. “Excluding these two players, net income still rose meaningfully, by 17 percent. Industry results were helped by higher fee income from increasing account values, higher new money yields, good underwriting experience and modest net positive actuarial assumption updates. Net capital generation, however, was modest, as much of the industry redeployed its net income in share buybacks and shareholder dividends.”
Operating earnings reported by the group were up 25 percent to $7.4 billion for Q3 2013 compared to $6.0 billion in Q3 2012. Only three of our 19 tracked companies reported lower operating earnings in Q3 2013 compared to the prior year.
Moody’s also noted that a number of companies reported the impact of changes in their actuarial assumptions in Q3 2013. While the impact on individual company earnings was somewhat mixed, the effect was net positive for the industry. Among the larger players, AIG (life and retirement), reported a net positive impact related to changes in gross profit assumptions and had an associated DAC unlocking that contributed to a 40-percent increase in net income compared to prior-year results.
The effect of MetLife’s change in actuarial assumptions across its business lines was a moderate net negative. Prudential took a $1.7 billion charge related primarily to lower lapse assumptions on its variable annuity contracts. Even after taking this charge, Prudential posted nearly $1 billion in net income, helped by better operating performance and swings in certain non-economic items.
Helped by higher interest rates, Moody’s reported that year-over-year fixed annuity sales rose by 72 percent compared to Q3 2012; however, as industry players continued to reduce benefits and increase costs, variable annuity sales continued to decline—down 20 percent compared to Q3 2012. Individual life sales were up 6 percent relative to the prior-year period.
Benefit ratios for most of the disability writers were lower during Q3 2013, reflecting the past several quarters of price increases. Lincoln, StanCorp and Unum reported lower benefit ratios for the quarter. However, Assurant reported less favorable disability experience with earnings hurt by lower claim recoveries and higher incidence. MetLife strengthened reserves for its group disability business in Australia, which has also hurt reinsurers such as Reinsurance Group of America Inc. and Swiss Re Life & Health America, Inc.
In addition, the trend of impairments continued for the quarter with modest losses just over 1 basis point (of average invested assets) for the industry.
The ratings firm added predictions for the quarter and year ahead: “So far in 2013, life insurers have reported uneven quarterly results, which we expect will stabilize going into 2014 as the global economy begins to show real signs of growth. However, for the last quarter of 2013 we expect that low interest rates will continue to be a drag on earnings, in spite of recent interest rate upticks, which take some time to meaningfully benefit earnings.”
For Moody’s third-quarter financial results among P&C insurers, click here.
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