One hundred companies, comprising 85% of life insurance industry assets, earned a record $30.4 billion in operating earnings in 2007, according to data from Insurance Consulting & Analysis, LLC, surpassing the previous record of $28 billion in 2005.

While shareholder dividends of $21.4 billion consumed 68% of operating earnings, and the industry recorded a net capital loss, increases in surplus paid-in and other accounting changes contributed to a 6.4% surplus gain for the life industry, the highest percentage gain since 11.6% in 2004.

Table 1 shows the components of surplus changes for the Townsend 100 Companies for the years 2003-2007. 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. Shareholder dividends have exceeded new surplus paid-in in 9 of the last 11 years, as the life industry tried to minimize capital accumulation and raise returns on equity.

New surplus paid-in of $4.6 billion in 2007 was the highest total since 2004, but still substantially lower than each of the years 2000-2004. Shareholder dividends of $21.4 billion fell short of the record $21.5 billion paid in 2006, resulting in a net surplus paid-out of $16.8 billion, down from 2005 and 2006 levels.

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 years 1997-2007.

Net investment yield declined 179 basis points from 1997 to 2005, from 7.66% to 5.87%, but recovered 7 basis points to 5.94% in 2007. The life industry yield of 5.87% in 2005 was its lowest since 1965.

Spurred by strong operating earnings, return on mean equity in both 2003 and 2004 set a record high of 11.1% for the 18-year history of these reports. Despite record earnings, and a 15% gain in earnings in 2007, the life industry ROE was only 10.2% in 2007.

Capital ratios peaked at 12.0% at 12/31/99, then declined to 10.1% at 12/31/02, before rising to 11.6% at 12/31/06. The 2007 improvement in the capital ratio can be attributed to both record operating earnings and increased capital contributions.

The table on page 10 shows the components of surplus changes for the individual companies in the Townsend 100.

Twenty-two of the Townsend 100 Companies had operating gains exceeding $500 million in 2007, and comprised 73% of the Townsend 100 composite earnings, up from 18 companies comprising 61% of aggregate earnings in 2006.

Eight companies earned more than $1 billion and accounted for 40% of the Townsend 100 composite earnings: United Healthcare, $2.29 billion; Metropolitan Life, $2.109 billion; AFLAC, $1.794 billion; Teachers Insurance & Annuity, $1.442 billion; AGC Life, $1.256 billion; Aetna Life, $1.152 billion; American General (TX), $1.07 billion; and MetLife Insurance Co. (formerly Travelers), $1.023 billion.

Thirteen of the Townsend 100 Companies had an operating loss in 2007, compared to 13, 19, 26, 12, 7, 10 and 8 companies, respectively, for 2000-2006. Largest losses were MetLife Investors USA, $1.09 billion; Employers Re, $339 million; Transamerica Occidental, $170 million; Lincoln Life & Annuity, $162 million; and John Hancock USA, $109 million.

Only 6 companies had net capital gains exceeding $500 million in 2007: Hartford Life, $828 million; Hartford Life & Accident, $781 million; Teachers Insurance & Annuity, $772 million; Transamerica Occidental, $701 million; and Northwestern Mutual, $692 million.

Fifty-eight of the Townsend 100 Companies reported a net capital loss in 2007, compared to 88, 48, 31, 46 and 44 companies, respectively, in 2002-2006, as companies wrote down impaired fixed income holdings. Largest net capital losses were posted by 4 subsidiaries of American International Group: AGC Life, $1.301 billion; American Life (DE), $767 million; American General (TX), $630 million; and AIG Annuity, $566 million.

Seven of the Townsend 100 Companies reported both operating losses and net capital losses in 2007, compared to 11, 12, 20, 4, 3, 5 and 1 companies, respectively, for 2000-2006. Employers Re had $339 million of operating losses and $300 million of net capital losses, but a $1 billion surplus contribution increased its surplus by 70% in 2007.

Forty-one of the Townsend 100 Companies paid-in new surplus funds of $4.6 billion in 2006, up from 39 companies paying in $4.1 billion in 2006, and 29 companies paying in $3.1 billion in 2005.

In 2007, 65 of the Townsend 100 Companies paid shareholder dividends of $21.4 billion, down from 72 companies paying $21.5 billion in 2006. Shareholder dividends exceeded $1 billion for United Healthcare, $1.92 billion; AFLAC, $1.362 billion; Monumental, $1.2 billion; Lincoln National, $1.061 billion; and AGC Life, $1.033 billion.

Seventeen companies paid more than $500 million, and 44 of the Townsend 100 Companies paid more than $100 million in shareholder dividends in 2007, compared to 14 and 44 companies, respectively, in 2006.

Largest aggregate surplus gains in 2007 were Metropolitan Life, $3.6 billion; Teachers Insurance & Annuity, $3.2 billion; Hartford Life, $1.2 billion; Northwestern Mutual, $1.1 billion; and Prudential Insurance, $1.1 billion.

Largest percentage surplus gains in 2007, excluding new surplus paid-in, were Hartford Life & Annuity, 46%; Metropolitan Life, 30%; Protective Life, 29%; and United Healthcare, 26%.

Thirty-three of the Townsend 100 Companies had surplus declines in 2007. The largest percentage surplus declines were Provident L&A, 53%; Reassure America, 32%; Monumental Life, 23%; AIG Life, 23%; and Swiss Re, 22%. All 5 companies paid large shareholder dividends.

Frederick S. Townsend, President of the Townsend Independent Actuarial Research Alliance (TIARA), produces Due Diligence Reports on life insurance companies and can be reached at . Laurie Dallaire can be reached at