One hundred companies, comprising 85% of life insurance industry assets, paid a record $21.6 billion in shareholder dividends in 2006, according to data from Insurance Consulting & Analysis LLC, surpassing the previous record of $20.7 billion in 2005.
Operating earnings of $26.3 billion in 2006 fell 6% from the record $28 billion set in 2005, and were 2% below the second-highest earnings of $26.8 billion, recorded in 2004. Life insurers began to ratchet up crediting rates on interest-sensitive policies in 2006, with a moderation in interest rate spreads.
Record shareholder dividend payments held surplus growth to a modest 5.6% gain in 2006, well below gains of 11.6% in 2004 and 16.7% in 2003. The latter was the highest gain since a 19.4% surplus gain in 1993, when companies propped up surplus to build Risk Based Capital ratios, to counter rating agency downgrades and to assuage solvency scares.
Fourteen companies paid more than $500 million, while 25 companies paid more than $300 million, and 44 of the Townsend 100 Companies paid more than $100 million in shareholder dividends in 2006. This reflects not only conversion of many large mutual companies to stock companies, but also consolidation of companies in the life industry.
Only 9 of the Townsend 100 had an operating loss in 2006, compared to 13, 19, 26, 12, 7 and 10 companies, respectively, for 2000-2005. The largest losses were reported by Transamerica Occidental, $510 million; OM Financial, $434 million; Allianz, $299 million; Employers Re, $266 million; and Jefferson-Pilot Life, $156 million.
Only 44 of the Townsend 100 Companies reported a net capital loss in 2006, compared to 88, 48, 31 and 46 companies, respectively, in 2002-2005, as net capital gains rose to $9.7 billion in 2006 from $5.9 billion in 2005. Largest net capital losses were posted by AGC Life, $651 million; Genworth Life, $397 million; and Life Investors, $245 million.
Only 1 of the Townsend 100 Companies reported both operating losses and net capital losses in 2006, compared to 11, 12, 20, 4, 3 and 5 companies, respectively, for 2000-2006. RGA Reinsurance had $65 million in operating losses and $12 million in net capital losses
Shareholder dividends paid-out exceeded surplus paid-in in by $19.9 billion in 2006, down slightly from $22.9 billion in 2005, but more than double the previous record of $9.4 billion in 2004. Surplus paid-in for the Townsend 100 Companies was only $1.6 billion in 2006, the second lowest amount in the last 10 years.
Table 1 shows the components of surplus changes for the Townsend 100 Companies for the years 2002-2006. Surplus includes the asset valuation reserve and the interest maintenance reserve, while operating gain excludes amortization of the interest maintenance reserve.
Table 2 shows new surplus paid-in, shareholder dividends paid-out, and the net result for the Townsend 100 Companies for the years 1997-2006. Shareholder dividends have exceeded new surplus paid-in in 8 of the last 10 years as the life industry tries to minimize capital accumulation and raise returns on equity.
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 years 1997-2006.
