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April 05, 2009 at 08:00 PM
Operating data for the Townsend 100 Composite of the 100 largest U.S. life insurance companies, 
comprising 85% of industry assets, shows $100 billion of net capital losses, $70 billion of new capital infusions, an $816 million net operating loss, and a 12% decline in total surplus funds in 2008.
Net capital losses of $100 billion in 2008 consumed 33% of surplus funds available on January 1, 2008, according to data from Insurance Consulting & Analysis, LLC. But the surplus decline was held to 12% after parent companies paid in $70 billion of new surplus in 2008, compared to a total $65 billion for the previous 11 years (1997-2007).
Table 1 shows the components of surplus changes for the Townsend 100 Companies for the last 5 years. Surplus includes the asset valuation reserve and the interest maintenance reserve, while operating gain excludes amortization of the interest maintenance reserve.
While financial turmoil in 2008 caused both realized and unrealized capital losses in the bond and stock portfolios of major life insurers, the loss of investment income on bonds and stocks turned a record $30 billion of operating earnings in 2007 into an operating loss in 2008. In the 20-year history of this series of reports, the life industry has never come close to reporting an operating loss.
While surplus infusions in 2008 exceeded total infusions for the past decade, the Townsend 100 Companies preserved capital by reducing shareholder dividend payments to $16.9 billion in 2008, well below aggregate dividends paid in each of 2005-2007.
Table 2 shows new surplus paid-in, shareholder dividends paid out, and the net result, for the Townsend 100 Companies for the last 12 years. Net surplus paid-in of $53 billion in 2008 nearly offset the $59 billion of net surplus paid-out in 2005-2007.
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 last 12 years.
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 decline of 43 basis points in 2008, to a 5.51% industry yield, is the largest decline since drops of 51 and 47 basis points in 2002 and 2003, respectively, and the lowest industry yield ratio in 45 years.
Spurred by the decline in investment yield, return on mean equity was negative in 2008, following 5 consecutive years of 10% and 11% ROE’s for the life industry.
Capital ratios peaked at 12% at 12/31/99, then retreated to 11.6% at 12/31/07, before falling below 10% in 
2008 (for the only time in the last 12 years).
The large table on page 18 shows the components of surplus changes for each of the individual companies in the Townsend 100.
While 22 of the Townsend 100 Companies had operating gains exceeding $500 million in 2007, only 14 companies reached this level in 2008.
Six companies earned more than $1 billion in 2008 (down from 8 companies in 2007): United Healthcare, $1.89 billion; AFLAC, $1.78 billion; American Life (DE), $1.24 billion; Northwestern Mutual, $1.12 billion; Teachers Insurance & Annuity, $1.11 billion; and Aetna Life, $1.06 billion.
unrealized losses), $21.17 billion; AIG Annuity, $9.46 billion; and American General (TX), $9.38 billion.