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Retirement Planning > Retirement Investing

AIG's Life and Retirement Business Made $650 Million: Earnings

By Allison Bell

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A security guard stands inside the American International Group Inc. (AIG) headquarters office in New York, U.S., on Tuesday, Jan. 29, 2016. American International Group Inc., the insurer being pressured by activist investor Carl Icahn to divest assets, had the outlook on its credit rating changed to negative from stable by Standard & Poor's after announcing plans to sell a stake in mortgage insurer United Guaranty Corp. Photographer: Victor J. Blue/Bloomberg (Photo: Victor J. Blue/Bloomberg)

American International Group (AIG) is reporting a $9.7 billion pre-tax operating loss for the second quarter, but the life and retirement business did fine, after adjustments.

AIG is reporting a $7.9 billion net loss for the second quarter on $9.4 billion in revenue, compared with $1.1 billion in net income on $13 billion in revenue for the second quarter of 2019.

(Related: 8 Things Globe Life Is Saying About How the World Really Is)

About $8.4 billion of the operating loss was due to the sale of businesses outside of the life and retirement sector.

The company’s life and retirement unit is reporting $650 million in adjusted pre-tax income on $4.5 billion in revenue, compared with $804 million in adjusted pre-tax income on $3.8 billion in revenue for the year-earlier quarter.

The individual retirement unit is reporting $550 million in adjusted pre-tax income on $1.3 billion in revenue, compared with $588 million in adjusted pre-tax income on $1.5 billion in revenue.

Although the life and retirement business was profitable, after adjustments, the decrease in earnings was “driven by private equity losses, continued spread compression and elevated mortality related to COVID-19,” the company said Monday.

“Spread compression” refers to a narrowing of the gap between what an insurer pays holders of products such as annuities and what it earns on its own investments.

The full, unadjusted results for the life and retirement business include the effects of a $1 billion drop in the value of derivatives embedded in variable annuities, net of related hedges.

“Mark-to-market” drops in the value of derivatives do not involve loss of cash.

Here’s what AIG said happened to net flows of assets for several individual retirement products, in the United States, between the second quarter of 2019 and the latest quarter:

  • Indexed annuities: A $439 million inflow (down from a $1.1 billion inflow)
  • Variable annuities: A $423 million outflow (compared with a $594 million outflow)
  • Fixed annuities: A $703 million outflow (compared with a $79 million outflow)

Ameriprise Financial (NYSE:AMP)

Ameriprise is reporting $1.5 billion in net income for the second quarter on $2.7 billion in revenue, compared with $492 million in net income on $3.2 billion in revenue for the second quarter of 2019.

The annuities unit is reporting $155 million in pre-tax adjusted operating earnings on $583 million in adjusted operating revenue, compared with $129 million in operating earnings on $620 million in operating revenue for the year-earlier quarter.

The protection unit, which sells life insurance, is reporting $70 million in pre-tax adjusted operating earnings on $257 million in adjusted operating revenue, compared with $65 million in operating earnings on $259 million in operating revenue for the year-earlier quarter.

Here’s what happened to cash sales of three types of protection products between the second quarter of 2019 and the latest quarter:

  • Variable universal life and universal life: $41 million (down from $70 million)
  • Term and whole life: $10 million (down from $11 million)
  • Disability insurance: $32 million (down from $34 million)

Although the company’s Riversource annuity unit increased operating earnings in the second quarter, company executives had bad news for financial professionals who have been counting on having a wide array of annuities to offer clients: Because of the very low interest rate environment, the company has stopped new sales of Riversource fixed annuities, and of new Riversource indexed annuities filed as non-variable products.

Jim Cracchiolo, the company’s chief executive officer, said the company is now focusing on sales of a new structured annuity product, which offers purchasers limited protection against loss of principal.

Between sales of the new structured annuity contract and the company’s main variable annuity product, “more than 50% of new Riversource annuity sales in the quarter were in products without living-benefit guarantees,” Cracchiolo said. “As we progress through the year, we should increase that even further.”

Similarly, in the life insurance market, the company has shifting its focus toward variable universal life, and away from indexed universal life.

“As with our variable annuities, we continue to make pricing and benefit adjustments, including cap rate reductions and adjustments to our underwriting, as appropriate,” Cracchiolo said.

Walter Berman, the chief financial officer, said increased COVID-19 mortality seems to have helped the performance of the company’s closed block of long-term care insurance (LTCI).

Berman called that particular type of improvement unfortunate. “Because, obviously,” he said, “it has impacts on our clients.”

Another issue is that it’s still not clear how long the improvement in LTCI block performance will last, Berman said.

Kansas City Life Insurance Company (OTCQX:KCLI)

Kansas City Life Insurance Company says the sale of an industrial real estate property helped earnings in the second quarter.

The Kansas City, Missouri-based life insurer is reporting $17 million in net income for the quarter on $147 million in revenue, compared with $5.3 million in net income on $130 million for the second quarter of 2019.

But the company says that, because of the drop in interest rates, investment income was down, and that, because of COVID-19, life insurance claims were up.

Cigna Corp. (NYSE:CI)

Cigna is reporting $1.8 billion in net income for the second quarter on $39 billion in revenue, up from $1.4 billion in net income on $38 billion in revenue for the second quarter of 2019.

The Bloomfield, Connecticut-based company ended the quarter providing or administering health coverage for 17 million people, or about as many as it was covering a year earlier.

Here’s what happened to three types of health plan enrollment between the second quarter of 2019 and the latest quarter:

  • Commercial Insurance and Self-Funded Plan Administration: Held steady at 14 million.
  • Government plans: Held steady at 1.4 million.
  • International Coverage: 1.7 million (up from 1.6 million)

Cigna is selling its group life and disability business to New York Life Insurance Company, but those have been large operations. One question has been whether COVID-19 could lead to enough cases of disability to affect disability insurers.

Eric Palmer, Cigna’s chief financial officer, said during the company’s earnings call that group life claims were up, because of COVID-19, but that the performance of the group disability business was good.

Molina Healthcare (NYSE:MOH)

Molina is reporting $276 million in net income for the second quarter on $4.4 billion in revenue, compared with $196 million in net income on $4 billion in revenue for the second quarter of 2019.

The Long Beach, California-based company ended the quarter providing or administering major medical coverage for 3.6 million people, up from 3.4 million people a year earlier.

Here’s what happened to three types of health plan enrollment, when compared with the year-earlier quarter:

  • Medicaid plans: 3.1 million (up from 3 million)
  • Medicare plans: 108,00 (up from 100,000)
  • ACA public exchange: 325,000 (up from 308,000)

Joseph Zubretsky, Molina’s chief executive officer, said during the company’s earnings call that, because of COVID-19, utilization of many types of care was down “significantly” early in the quarter, and down 10% toward the end of the quarter.

The company paid for COVID-19 hospital care for 4,100 enrollees, at an average of cost of $9,000 per inpatient episode, on top of the cost of outpatient care and other care for the affected patients.

— Read Life, Health and Annuity Issuer Earnings Season Begins, on ThinkAdvisor.

— Connect with ThinkAdvisor Life/Health on Facebook, LinkedIn and Twitter.

Allison Bell

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