Top companies maximized net realized capital gains and minimized realized capital losses in 2005 over 2004, according to annual statement filings.
The top 25 companies had net realized capital gains of $3.9 billion in 2005, a 693% increase over 2004′s $490 million, according to data taken from the National Association of Insurance Commissioners (NAIC) Annual Statement Database, via Highline Data LLC.
The top 10 companies had $3.3 billion in net realized capital gains in 2005, a 981% increase over 2004′s $303.4 million.
Apart from the size of the very top companies in the net realized capital gain category, recognizing real estate value may account for the large gains achieved by some companies.
For instance, Metropolitan Life Insurance Company, Long Island City, N.Y., sold its signature 200 Park Ave. property above Grand Central Station in 2005 for $1.72 billion.
New York Life was another example of this. “In 2005 the most significant driver of statutory net realized capital gain for New York Life was the sale of an apartment house in Manhattan for a gain in the hundreds of millions of dollars,” says William Werfelman, a spokesman for New York Life, New York.
TIAA-CREF, New York, sold two properties near Grand Central–45 Lexington Ave. and 750 Third Ave.–in 2005, says Russell Noles, vice president and acting CFO of TIAA-CREF. The company recorded $236 million in gains, he notes.
Noles explains that the net realized gain in 2005 and the net realized loss in 2004 were the result of extraordinary events. In 2006 and beyond, Noles says he anticipates more even capital gains results going forward unless there are unusual events such as spikes in credit losses or very large interest rate increases.
Noles says 2004 was a “really tough year for us” because of an adjustment to TIAA-CREF’s investment portfolio, largely its fixed income portfolio, which the company undertook in order to strengthen its risk-based capital ratio. The RBC ratio was strengthened so the company would retain its ‘AAA’ financial strength ratings, he says.
In order to complete the restructuring, TIAA-CREF sold impaired loss securities and below investment grade holdings, he says. Consequently, the below investment grade portion of the portfolio was reduced to less than 5% from a 6%-7% level prior to 2004, according to Noles.
In 2005 the sale allowed TIAA-CREF to cut costs by relocating to existing facilities in Charlotte, N.C., and Denver and to strengthen a business continuity plan in the event of another terrorist attack in New York, he says.
Capital gains in 2005 were also the result of a number of TIAA funds that sold properties, he adds.
Looking at the other end of the spectrum, net realized capital losses for the top 25 companies were $982.4 million in 2005 compared with losses of $848.8 million in 2004, a 15.7% increase.