Operating earnings rose 16% in the first 9 months of 2007 for the Townsend 100 U.S. life insurance companies, which hold for 84% of industry assets.
Data produced by Insurance Consulting & Analysis, LLC, shows 9-month operating earnings rose from $19.2 billion to $22.3 billion, setting an industry record for 9-month operating earnings. If the Townsend 100 Companies earn $6 billion in the 4th quarter of 2007, they will set an industry record for a calendar year.
Net capital gains rose from $4.1 billion to $5.9 billion for 9 months, but are in jeopardy of incurring collateral debt obligation (CDO) losses in the 4th quarter from high-risk mortgage securities.
Shareholder dividend payments rose slightly from $13.0 billion to $13.2 billion, and consumed 47% of operating earnings and net capital gains. Total surplus funds increased 5.4% in the first 9 months of 2007, compared to 3.1% in 9 months of 2006.
Table 1 shows the components of surplus changes for The Townsend 100 Companies for the 5 years 2002-2006, and for the first 9 months of 2007. 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 years 1997-2006 and for 9 months of 2007.
If 4th quarter shareholder dividends are unchanged from 2006 to 2007, a record level of shareholder dividends will be established for the third consecutive year.
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 1997-2006, and for 9 months of 2007.
Net investment yield fell 51, 47 and 21 basis points in 12 months of 2002-2004, respectively, but may come in with a 5.9% industry yield for the 4th consecutive year in 2007.
As banks have incurred asset writedowns in 2007, they have lowered crediting rates on their certificates of deposit, enabling life insurers to expand margins on competing interest-sensitive products, and increase life industry operating earnings.
Return on mean equity for 9 months rose from 9.8% in 2006 to 10.5% in 2007, but was short of the 11.2% mark reported for 9 months of 2004 (a record high for the 18-year history of this column).
Capital ratios peaked at 12.0% on Dec. 31, 1999, then fell over 3 years to 10.1% on Dec. 31, 2002, before rising to 11.5% on Sept. 30, 2007. The capital ratio has been boosted for the last 5 years by record earnings, but depressed by large shareholder dividend payments.
The large table on page 8 shows the components of surplus changes for each of the individual companies in The Townsend 100 Companies.