The life insurance industry saw its capital and surplus levels rebound just short of year-end 2008 levels, according to data released by SNL Financial.
Unexpectedly strong life sector profitability helped the industry's policyholders' surplus jump to $252.2 billion in the aggregate as of June 30, up from $240.6 billion as of March 31, and not far from the year-end 2008 level of $252.5 billion. The increase in surplus stands in contrast to the quarter-over-quarter declines the life sector experienced in five of the six previous reporting periods.
SNL data indicates that 16 of the top 25 U.S. life groups saw their statutory net income improve sequentially in the second quarter, despite declining revenues and investment losses. Lower expenses helped the life industry produce net income of $8.9 billion in the second quarter, up from a loss of $804 million in the first quarter and a $556.7 million loss in the year-earlier period.
Total underwriting deductions of $162.6 billion marked a sharp decline from $193.1 billion in the first quarter and $201.1 billion in the year-earlier period. Death benefits fell only slightly on a linked-quarter basis to $14.5 billion from just under $15 billion. Surrender benefits and withdrawals for life contracts amounted to $54.9 billion in the second quarter, compared with $63.7 billion in the first quarter and $67.9 billion in the year-earlier period.
However, the most notable factor identified by SNL in the lower underwriting deductions and, in turn, sharply higher net income, came in the line item labeled “increase in aggregate reserves for life and accident and health contracts” on the statutory income statement. That increase totaled just $9.8 billion in the second quarter, down from $31.5 billion in the first quarter and $26.4 billion in the year-earlier period.
“In the midst of the global financial crisis, it’s reassuring to see such a striking increase in surplus, particularly in a sector governed by its capitalization,” said Jon Wright, associate director of Insurance at SNL. “However, even with the increase, invested asset leverage for life insurance industry remains almost 12 times equity, only slightly below the decade-high level of 12.5 recorded in the first quarter.”
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