Life insurers' statutory earnings, though still positive, fell by 16.5 percent in the second quarter of 2014 compared to the year-ago period, according to a new report.
ALIRT Insurance Research discloses this finding in a study that examines the performance of life insurers during the first six months of 2014. The research also compares industry financial results in 2014 relative to those of prior years.
For the quarter ended June 30, after-tax statutory earnings totaled $8.6 billion, down from $10.3 billion recorded in the second quarter of 2013. For the first six months of 2014, statutory earnings totaled $16.2 billion, off by $6.3 billion from the $22.5 billion posted for the same period in 2013, a 28 percent decline.
The decline in statutory earnings, the report shows, reduced annualized returns on equity (ROE) and assets to levels not witnessed since 2011. The report attributes the declines in part to moderating equity market performance.
"Equity markets continued to increase in the first half of 2014 (the S&P 500 was up 6.1 percent), though at a much smaller rate than the last two years," the report states. "Thus, variable product writers released a lower level of reserves, which led to somewhat lower returns on equity and assets in the first half of 2014."
The report cites other factors for the industry's less robust growth relative to recent years. Among them: low interests rates, a decline in the appeal of, and access to, current products, changes to the estate tax regime, a "weak" macroeconomic environment and "high persistency" of policies in force.
The research focuses particular attention on the industry's low investment returns, which impact profitability.
"The low rates have…depressed the ability and perhaps more important the appetite for new business, which has led to a sluggish premium and revenue environment since the financial crisis," the report states. "Premium volume on a direct basis actually declined in 2013 and the first half of 2014, so the top line for the industry seems to be under increasing pressure, despite gradual improvement in economic conditions."
The following is a recap of industry financial results in 2014 and prior years.
Total surplus rose 4.0 percent (7.9 percent on an annualized basis) during the first half of 2014 for the ALIRT Life Industry Composite. Surplus growth increased to 2.9 percent in the second quarter from 1.0 percent in the first quarter.
