NU Online News Service, Aug. 15, 2003, 4:25 p.m. EDT – The ING Groep N.V., Amsterdam, says it’s had a tough time maintaining spreads on U.S. fixed annuities and other products that offer U.S. customers guaranteed returns.
A spread is the difference between what a company pays holders of a fixed-rate product and what the company earns on the investments backing the product.
Interest rates have started to rise in the past few weeks, but the extremely low rates that prevailed during the second quarter forced many insurers to choose between holding fixed rates steady and accepting narrower spreads, or lowering rates fast enough to keep spreads wide.
At ING’s U.S. operations, during the first quarter, “declines in investment yields and spread compression decreased results by 224 million euros,” ING says in its second-quarter earnings release. “
ING let the dollar value of U.S. fixed annuity premiums fall 75% during the second quarter because of “continued focus on adherence to sound pricing practices to deliver satisfactory returns,” the company says. “Several fixed annuity products have been discontinued because of the low interest rate environment while others have been continued but with a reduced commission.”
The company as a whole is reporting the equivalent of $2.1 billion in net income for the latest quarter on $20 billion in revenue in U.S. currency, up from $1.7 billion in net income on $20 billion in revenue for the second quarter of 2002.
At home, ING is reporting 1.9 billion euros in net income on 17 billion euros in revenue, compared with 1.7 billion euros in net income on 20 billion euros in revenue for the second quarter of 2002.
First-half operating profits at the North American life insurance operations fell to $569 million, from $587 million, in U.S. currency.
The conversions here are based on an exchange rate of $1=0.87458 euros for the 2003 results, and an exchange rate of $1=1.00898 euros for the 2002 results. The exchange rates come from figures published by OANDA Corp., New York.