Shareholder dividends paid out in first half were highest in 15 years
Movement of capital out of the life insurance industry exceeded operating earnings and produced a 1.4% ($3.6 billion) decline in surplus in the second quarter of 2005 for the Townsend 100 Composite of 100 life insurers with 84% of the life industry’s assets.
According to data produced by Insurance Consulting & Analysis, LLC, the decline in surplus in the second quarter held growth in total surplus funds to 0.2% for the first six months of 2005, the lowest percent gain in the last 11 years.
Table 1 shows the components of surplus changes for the Townsend 100 Companies for calendar years 2000-2004, and for six months of 2005. Surplus includes the asset valuation reserve and the interest maintenance reserve, while operating gain excludes amortization of the interest maintenance reserve.
In six months of both 2004 and 2005, 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, reductions in crediting rates sharply improved total earnings in 2003 and 2004, and in six months of 2005.
Net capital gains were modest in the first six months of 2005, while shareholder dividends exceeded operating earnings for the Townsend 100 Companies. One of the ways that life insurers can increase their ROE is to reduce the equity held in their companies, which they aggressively did in the first half of 2005.
In the first six months of 2005, Metropolitan Life had the highest operating gains of $932 million, the highest net capital gains of $916 million, the highest shareholder dividends of $3.2 billion and the largest surplus decline of $1.36 billion.
Table 2 shows net surplus paid-in, shareholder dividends paid out and the net result for the Townsend 100 Companies for the full years 1997-2004 and for six months of 2005. The excess of shareholder dividends paid out, over new surplus paid-in, totaled $15.1 billion in the first six months of 2005. That number is a record when compared to the 12-month totals for the 15 years between 1990 and 2004.
Twenty-two companies paid shareholder dividends exceeding $100 million, and just 7 companies comprised $9 billion of the total $13 billion of shareholder dividends paid in the first half of 2005: Metropolitan Life, $3.2 billion; Travelers, $1.5 billion; Prudential, $1.5 billion; Metropolitan Tower, $0.9 billion; United Healthcare, $0.9 billion; Aetna Life, $544 million; and John Hancock, $465 million.
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 1997-2004, and for six months of 2005.
Net investment yield fell 29, 51, 47 and 21 basis points in 12 months of 2001-2004, respectively, but rose 2 basis points, from 5.90% to 5.92%, in the first six months of 2005. The flattening out of net investment yield, coupled with a sharp decline in crediting rates, has bolstered industry operating earnings for the last 30 months.