Despite a challenging interest rate and regulatory environment, many life insurers closed out 2016 with a tidy profit. The results attest to sustained consumer and business demand for their core protections. The gains also reflect a migration among insurers to solutions that offer greater earnings potential — income that has for some carriers more than offset declines in product sales.
Of eight major life insurers that posted fourth quarter and year-end results for 2016, six carriers — Allianz, Amerprise, Lincoln, Prudential, Securian and Unum — recorded positive net income for the quarter and/or year, though earnings in some cases dipped relative to the comparable periods in 2015. Those results were in stark contrast to the earnings at AIG and MetLife, which between them sustained an eye-popping $5.174 billion in fourth quarter losses.
Emblematic of life insurers that have pursued this earnings-boosting strategy is German powerhouse Allianz Group SE, which operates in the U.S. through Allianz USA.
The insurer posted €7.25 billion ($7.67 billion) in net income for all of 2016, exceeding 2015’s earnings of €6.99 billion ($7.39 billion), a 3.8 percent rise. The life/health segment was the biggest contributor to operating profit, totaling €4.15 billion ($4.39 billion) at year-end 2016, up 9.3 percent from the €3.8 billion ($4.02 billion) recorded for the year-ago period.
According to the company’s earnings release, a “higher investment margin” was a key factor fueling the increase life and health insurance operating profit.
“Allianz is quickly switching toward life products that can produce better returns for customers,” says the company’s Chief Financial Officer in a statement. “This strategic shift has benefited Allianz shareholders as well, as reflected in a new business margin of 2.9 percent in the last quarter of 2016.”
Though sales were down 10 percent across all product lines, including such key money-makers as property & casualty insurance, asset management services and life & health products, the last were the biggest contributor to Allianz’ top-line revenue. Year-end 2016 revenue for this category totaled €64.6 billion ($68.32 billion), off 3.4 percent from the €51.6 billion ($54.57 billion) recorded at year-end 2015.
Gains in the life segment helped to prop up earnings for Radnor, Pa.-based Lincoln Financial Group. Total individual life insurance reached $231 million in Q4 2016. (Photo: Thinkstock)
Posting a more modest earnings gain in the fourth quarter was Ameriprise Financial. The Minneapolis-based insurer recorded net income of $400 million in Q4 2016, up 12 percent from the $357 million earned in Q4 2015. But net revenue for Q4 2016 dipped by 1 percent or $41 million to $3.1 billion.
Protection products — including the life, auto and home, and long-term care segments — yielded $59 million in pretax operating earnings in Q4 2016. That was up an eye-popping 69 percent from the $35 million posted in the year-ago period.
One drag on company-wide earnings were variable annuities. Though sales totaled $1.1 billion in the Q4 2016, pre-tax operating income for the products edged down to $127 million from $152 million, a 16 percent dip.
Results on the investment side were mixed. The insurer’s advice and weal management unit posted $254 million in pre-tax operating earnings in the Q4 2016, up 21 percent from the $210 million recorded in Q4 2015. But assets under management produced $169 in pre-tax operating earnings in Q4 2016, a 12 percent decline from Q4 2015.
Gains in the life segment helped to prop up earnings for Radnor, Pa.-based Lincoln Financial Group. Total individual life insurance reached $231 million in Q4 2016, a 17 percent increase from the year-ago quarter; and $693 million for all of 2016, up 7 percent from 2015.
Sales were equally robust for Lincoln’s protection products. Revenue for this segment attained $263 million in the quarter of 2016, up 18 percent from Q4 2015; and $470 million for all of 2016, up 17 percent from the year-ago quarter.
Lincoln Financial’s Retirement Plan Services also enjoyed gains, albeit more modest in respect to earnings. The unit recorded income from operations of $34 million in Q4 2016, up 3 percent from $33 million from the year-ago period. But deposits for the three months ended December 31, were $2.4 billion, a 15 percent rise from Q4 2015, the increase fueled by “strong first-year sales in both the small and mid-large segments.”
Prudential’s U.S. individual life insurance sales topped $183 million in the fourth quarter of 2016, up 2 percent from the the year-ago period. (Photo: Thinkstock)
Protection products contributed to healthy year-over-year gains at Prudential Financial. U.S. individual life insurance sales, based on annualized new business premiums, topped $183 million in the fourth quarter of 2016, up 2 percent from the $179 million posted in the year-ago period. For all of 2016, individual life sales — term life, guaranteed universal, plus other universal and variable life sales — hit $630 million, up 6.6 percent from the $591 million recorded at year-end 2015.
Group insurance sales of $37 million in Q4 2016 contributed to a full-year sales increase of 59 percent ($435 million in 2016 vs. $273 million in 2015), the gain mainly driven by greater group life sales. Dampening Prudential’s rosy results was a sustained year-over-year dip in fixed and variable annuity sales: $173 million in net sales (gross sales less redemptions) at year-end 2016, vs. $365 million for all of 2015.
Fourth quarter earnings for the insurance titan, though positive, edged down from 2015. Net income in Q4 2016 totaled $284 million, down from $735 million for the year-ago quarter, a 61.3 percent decline.
But quarter-over-quarter gains across Prudential’s major product lines — including asset management services, institutional investment products and the retirement segment — underpinned the insurer’s upbeat assessment on its year-end financials.