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.
“Prudential delivered solid results in the fourth quarter and for the year, with good momentum across our businesses,” says Prudential Chairman and CEO John Strangfeld in a press statement. “We produced meaningful sales growth in our U.S. and international protection businesses and solid net flows in retirement and asset management for the year.”
St. Paul, Minn.-based Securian Life was sparse on its details in its fourth quarter and year-end financial statement. What the carrier did disclose emphasized the positive. Among the results:
Top-line revenue increased 4 percent to $4.4 billion. Over the past five years, Securian’s revenue has increased at a 9 percent compound annual growth rate (CAGR).
Insurance in-force increased 2 percent to $1.18 trillion.
Assets under management edged up 10 percent to $70.5 billion.
Insurance sales increased 6 percent to $955 million.
Annuity sales, which include annuities sold to individuals and retirement plans sold to employers, increased 19 percent to $2.0 billion.
Despite these gains, Securian’s earnings fell to 7 percent $255 million, down 7 percent from 2015. The reason: an increase in life insurance benefits paid
AIG sustained losses in several operations. Chief among them: $1.283 billion in net pre-tax losses from products that contain embedded derivatives and associated derivative portfolios. (Photo: Thinkstock)
Also in positive territory were financial results from Unum Group. The Chattanooga, Tenn.-based carrier enjoyed net income of $248 million for the fourth quarter of 2016, compared to net income of $226.1 million for the year-ago quarter.
Unum’s U.S. Segment, the biggest contributor to earnings — the insurer also has a U.K., Colonial Life, Closed Block and Corporate divisions — boasted operating income of $240.1 million in the fourth quarter of 2016, an increase of 12.1 percent from the $214.2 million posted in the same 3-month period of 2015.
Premium income for the segment increased 5.9 percent to $1.352 billion in the fourth quarter of 2016 from $1.251 billion in the Q4 2015. Earnings were notably robust for the carrier’s group life and accidental death and dismemberment line ($56.1 million in Q4 2016 vs. $54.3 million in Q4 2015); and group short-term disability sales ($61.8 million in Q4 2016 vs. $48.1 million in Q4 2015).
In its earnings release, Unum attributed its quarter-over-quarter gains mainly to “lower claims incidence rates, favorable claim recovery experience and the impact of rate increases in the in-force block for our group long-term disability product line.”
Not all life insurers posted gains earnings gains. Notable among those suffering losses was American International Group. The New York-based behemoth posted a whopping $3.041 billion loss in 2016, significantly more red ink than the $8.41 billion recorded in 2015. For all of 2016, AIG recorded a net loss of $849 million, way off the $2.196 billion in net income posted in 2015.
The carrier posted operating revenue from life insurance sales of $956 million in the fourth quarter of 2016, up from $923 million in Q4 2015. Premiums and fees ($679 million in Q4 2016 vs. $658 million in Q4 2015) and investment income ($263 million vs. $248 million, respectively) also were in positive territory.
The insurer additionally posted gains in operating revenue in its group retirement segment ($716 million in Q4 2016 vs. $679 million in Q4 2015) and in its personal insurance unit ($2.810 billion vs. $2.729 billion, respectively). Bucking the gainers, the individual retirement segment edged down, recording $1.376 billion in operating revenue in Q4 2016, as against $1.57 billion for the year-ago quarter.
What accounts for the carrier’s red ink? AIG flags pre-tax losses in several units, including corporate and other operations ($441 million), investment losses and related charges and adjustments ($824 million); impairments ($53 million), credit-impaired investments ($347 million) and a mammoth $1.283 billion in net pre-tax losses from products that contain embedded derivatives and associated derivative portfolios.
In a press statement, AIG President and CEO Peter Hancock accentuated the positive.
“We took decisive actions in 2016 to dramatically reduce uncertainty and deliver higher quality, more sustainable earnings in the future,” he says. “Going forward, we expect to see the results from our improved underwriting platform, reduced expense base, and the strong improvement in our business mix.”
MetLife suffered a significant net loss ($2.133 billion) in the fourth quarter of 2016, as compared to net income of $785 million in 2015. (Photo: Thinkstock)
AIG was not alone among the industry’s largest life insurers in posting red ink. Also in this unfortunate category was Metlife.
The insurer suffered a significant net loss ($2.133 billion) in the fourth quarter of 2016, as compared to net income of $785 million in 2015. Though earnings for all of 2016 were a positive $697 million, net income fell a marked 86.5 percent from last year.
Explaining the decline in earnings, the carrier flags $3.2 billion, after tax, in fourth quarter net derivatives losses that reflect changes in interest rates, foreign currencies and equities markets. This contrasts with $241 million in such losses for the fourth quarter of 2015.
“While rising interest rates are good for MetLife’s businesses, they reduced the carrying value of our derivatives book and produced a quarterly net loss on a GAAP basis,” says MetLife Chairman, President and CEO Steve Kandarian in a press statement. “For full year 2016, excluding notable items, market factors and underwriting reduced earnings, while management actions to control expenses and generate volume growth were positive.”
Results were rosier for the insurer’s life segment. MetLife enjoyed a rise in premium revenue from insurance products both for the quarter and the year: 9.652 billion for the three months ended December 31 vs. $9.605 billion for the year-quarter quarter; and $39.153 billion at year-end 2016 vs. $38.545 billion at the close of 2015.
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