100 Life Companies Post Record Surplus Gains For Six Months

High operating returns, positive capital gains, increased surplus paid-in and decreased shareholder dividend payments, created a surplus gain of 8.8% in the first six months of 2003, for the Townsend 100 Composite of 100 life insurers with 82% of the life industrys assets.

The 8.8% gain in the first six months of 2003 is a record high for the 11-year history of this writers column and surpasses the high of the 10 previous years (1993-2002), which was 8.3% in the first half of 1993. The data is supplied by Thomson Financial Insurance Solutions.

In six months of 2003, only 9% of the Townsend 100 companies had an operating loss, the lowest ratio since 5% in 1999. Although investment yield has been declining and suppressed earnings in 2001 and 2002, large reductions in crediting rates have improved total earnings so far in 2003.

Return on mean equity for the Townsend 100 jumped to 9.6% for six months of 2003, matching previous 9.6% highs in 1993 and 1997. The life industry has not achieved a double-digit return on equity since a 10.6% return in 1991.

Although nearly half (48%) of the Townsend 100 companies had net capital losses for six months of 2003, the 100 companies reported a total of $2.6 billion of gains. In the previous three years, the percentage of companies with net capital losses ranged from 67% to 90%.

New surplus funds were paid-in by 21% of the Townsend 100 companies in the first six months of 2003, setting a record high for the last 11 years. The previous high was 17% in 2000 and 2002.

Shareholder dividends were paid by 25% of the Townsend 100 companies in the first six months of 2003, a record low for the last 11 years. The previous low was 31% in 1994.

Although fewer companies paid surplus in than paid shareholder dividends out, the aggregate surplus paid-in of $2.3 billion exceeded aggregate shareholder dividends of $1.9 billion. This is the first time since 1993 that this situation has happened in the first six months of the year.

Even miscellaneous (All Other) surplus changes were positive for the Townsend 100 in the first six months of 2003, totaling $4.6 billion, increasing surplus by 2.3%.

With all of the positive developments, only 8% of the Townsend 100 companies reported a surplus decline for six months of 2003. This also set a record low for the last 11 years, easily surpassing previous lows of 12% in 1997 and 1998.

Table 1 shows the components of surplus changes for the Townsend 100 companies in the first two quarters of 2003, and in the first six months of 2003 and 2002. 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 full years 1998-2002 and for six months of 2003.

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 1998-2002, and for six months of 2003.

The table on this page shows components of surplus changes for each of the companies in the Townsend 100, comprising 82% of life industry assets.

Thirty-four percent of the Townsend 100 earned more than $100 million in six months of 2003, compared to 17% for six months of 2002. Eight companies comprised one-third of the Townsend 100 Composite earnings: Teachers, $659 million; AFLAC, $548 million; MetLife, $523 million; Travelers, $363 million; John Hancock, $344 million; New York Life, $306 million; Equitable, $305 million; and Pacific Life, $302 million.

Highest operating losses for six months of 2003 were reported by Pruco, $128 million; Employers Re, $69 million; and General American, $66 million.

Five companies comprised 73% of the Townsend 100 net capital gains: MassMutual, $447 million; AGC Life, $423 million; Northwestern Mutual, $356 million; MetLife, $346 million; and Hartford Life & Accident, $319 million.

Highest net capital losses for six months of 2003 were reported by Teachers Ins. & Annuity with $270 million and Pacific Life with $84 million.

Only 4% of the Townsend 100 had both operating losses and net capital losses for the first six months of the year (the lowest ratio since 2% in 1999): Continental Assurance, F&G Life, Pruco Life and Unum Life.

Capital accumulation in the life industry has been very strong since the fourth quarter of 2002, when companies responded sharply to rating downgrades and warnings issued by the public rating agencies. Shareholder dividends paid by the Townsend 100 in the first six months of 2003 were the lowest six months payout since 1994.

Miscellaneous (All Other) surplus changes for six months were the highest in eight years. The years 1996-2001 showed losses, while 2002 and 2003 showed gains.

Largest aggregate surplus gains for six months of 2003 were: New York Life, $1,663 million; MetLife, $1,115 million; MassMutual, $866 million; and Northwestern Mutual, $861 million.

Excluding surplus paid-in, the largest percent gains in surplus for six months of 2003 were reported by the U.S. Branch of Sun Life with 42%; Transamerica Financial with 33%, and Manufacturers Life with 27%.

Surplus declined for only 8% of the Townsend 100 for six months of 2003, with the largest percent declines being Pruco 34% (with operating losses and capital losses) and Security Life of Denver 16% (with a large shareholder dividend payment).

Frederick Townsend, an investment banker in Wolcott, Conn, is a founder of the Townsend & Schupp Company. He can be reached via e-mail at ftownsend@townsendandschupp.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 10, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.