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.