Operating earnings declined 5% and shareholder dividends fell 20%, from 9 months of 2005 to 9 months of 2006, for the Townsend 100 U.S. life insurance companies, accounting for 84% of industry assets.
Data produced by Insurance Consulting & Analysis LLC shows operating earnings fell from a record $20.2 billion to $19.2 billion in the 9 months of 2005 and 2006, respectively, while shareholder dividend payments dropped from $16.3 billion to $13 billion, for the same period.
Although aggregate shareholder dividend payments declined 20%, the number of companies paying shareholder dividends in the first 9 months of 2006 hit a record high of 53 companies, obliterating the previous record of 45 companies in 2001 and 2005.
Lack of new investment in the life industry was further demonstrated in 9 months of 2006, when only 21 of The Townsend 100 paid in new surplus–the lowest total since 19 companies in 2001. Net of accounting reversals of previous surplus paid-in, the 100 showed a negative contribution to surplus of $1.2 billion.
Shareholder dividend payments plus the negative surplus paid-in totaled $14.2 billion, which consumed 74% of the $19.2 billion in operating earnings. However, surplus growth for 9 months of 2006 was 3.1%, compared to a growth rate of 1.3% for 6 months of 2006 (when the second quarter showed a surplus decline).
Table 1 shows the components of surplus changes for The Townsend 100 Companies for the 5 years 2001-2005 and for the first 9 months of 2006. Surplus includes the asset valuation reserve and the interest maintenance reserve, while operating gain excludes amortization of the interest maintenance reserve.
It appears that aggregate numbers in each category for the full year 2006 may fall short of 2005 totals.
Table 2 shows new surplus paid-in, shareholder dividends paid out and the net result for The Townsend 100 for the years 1997-2005 and for 9 months of 2006.
The year 2006 appears to have moderated from 2004 and 2005 levels.
Table 3 shows net investment yield on mean invested assets, return on mean equity, and the capital ratio (total surplus to invested assets) for The Townsend 100 Companies for the full years 1997-2005 and for 9 months of 2006.
Net investment yield fell 51, 47, 21 and 3 basis points in 12 months of 2002-2005, respectively, but increased to a 9 basis point decline in 9 months of 2006. Life insurers reacted by lowering crediting rates on interest-sensitive products through 2005, with the net result being 3 consecutive years of record operating earnings.
As banks have become more aggressive with 5-year certificates of deposits paying interest in a range of 5% to 5.4%, crediting rates have moved up on many interest-sensitive life and annuity products, contributing to a narrowing of profit margins and a decline in operating earnings.
