Through the third quarter of 2005, dividends paid to policyholders were down 10% for the top 50 companies compared to the same period in 2004, according to statutory filings.
Total dividends paid by these companies for the first nine months of 2005 came to $11.6 billion compared with $12.9 billion in the first nine months of 2004, the data supplied by the NAIC Annual Statement Database via National Underwriter Insurance Data Services/Highline Data indicates.
In fourth quarter 2004, the top 50 paid out $3.7 billion, the data shows. If the same payout is assumed for fourth quarter 2005, then the full-year total would equal $15.3 billion, still down 8% from 2004′s $16.6 billion. Full-year 2005 data will not be available until after March 2006 when companies are required to file annual statements with insurance regulators.
“Lower total dividend payments are a result of several things occurring in the marketplace,” says Paul Graham, vice president-insurance regulation and chief actuary with the American Council of Life Insurers, Washington. “Low interest rates, such as those experienced in the last few years, will lead to lower dividend levels, while changes in mix of business between participating and non-participating products also will influence the total dividends paid by the industry,” he adds.
Of the top 50 insurers in this category, 28 experienced declines in dividends paid to policyholders.
Among the major insurers that showed declines are: Prudential Insurance Company of America, down 68%; John Hancock Life Insurance Company, down 39%; John Hancock Life Insurance Company (USA), down 34%; Metropolitan Life Insurance Company, down 25%; MONY Life Insurance Company, down 17%; and Massachusetts Mutual Life Insurance Company, down 10%.
In a statement, John Hancock says the “research does not take into account statutory accounting rules related to reinsurance.” It would not elaborate on the statement.
MONY’s decline can be attributed to two reasons, says AXA Group spokesperson Jeff Tolvin. MONY was acquired by AXA Financial in July 2004. The first reason, he says, is an adjustment to the interest rate factor used to determine the rate paid out.
The second reason, says Tolvin, is a reduction in the number of in-force policies since MONY’s demutualization. The block of business has been closed, he says.
The YTD decline recorded by MetLife is due to an accounting change, says Chris Breslin, a Met spokesperson. A total of $60 million in group life and health dividends were reclassified as premiums in line 1 of the company’s summary of operations, he says. The reason, Breslin explains, is that those group policies qualified for refunds, and it was determined by the company that they should not be called dividends. Rather, he continues, MetLife views them as a return of premium.
At press time, MassMutual had declined comment.
Although the regulatory filings indicate that dividends paid to policyholders declined in the YTD period, Prudential Financial issued the following statement: “Prudential Insurance’s Board of Directors approved payment of about $2.3 billion in dividends in 2005 for participating individual life policies and annuity contracts. The effect of this new dividend scale varied from policy to policy. Dividends on participating life policies reflect mortality, persistency, investment results and other factors. For 2006, the board approved payment of approximately $2.35 billion in policy dividends for our participating individual life policies and annuity contracts.”
For other segments of financial services the payment of dividends was inconsistent. The trend was upward for mutual funds but down for credit unions.
Data compiled by the Investment Company Institute, a mutual fund industry trade group based in Washington, indicates that long-term mutual funds paid $98.1 billion in dividends in 2004 compared with $85.9 billion in 2003, a 14.2% increase.
Dividends paid by money market mutual funds also grew in 2004 over 2003, according to ICI. In 2004, paid dividends increased to $18.6 billion, up 8.8% from 2003′s $17.1 billion.
In the period between 1984 and 2004, dividends paid by long-term mutual funds increased in 15 of 20 years. Three of the five years’ declines were charted in 2000 through 2002, when the market dropped substantially.
Money market mutual funds in the same 20-year period experienced increases in dividends paid out in 12 years. Again, the period of 2001 through 2003, a period of market declines and low interest rates, represented three of those eight years.
For credit unions, the trend was downward. In December 2004, dividends on shares totaled $7.5 billion, down 10.1% from December 2003′s $8.3 billion total, which, in turn, had declined 19.9% from $10.4 billion the year before. Data on 2005 is not yet available, according to CUNA spokesperson Pat Keefe. Some credit unions, he notes, pay “interest” on shares, rather than “dividends.”
Banking trade organizations and government agencies monitoring banking activities did not have data on mutual savings banks, they say. The reason, they add, is that any surplus is added to capital and applied to making lower interest rates available on both deposits and loans.
A Feb. 13, 2006, article stated that John Hancock’s dividends paid to policyholders declined through the third quarter of 2005 compared to the same period in 2004, according to statutory filings. Hancock says dividends paid to individual policyholders increased in 2005 and were up 2.3% overall for Hancock insurance companies that pay dividends to individual participating policyholders.