Life Insurers Face the Q3 Earnings Stress Test

Most carriers seem to have gotten through the turbulence with their profits intact.

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One sign of U.S. life insurers’ strength is how well most did in the third quarter.

Life insurers are wrestling with low interest rates, wild stock prices and COVID-19.

But seven of the 11 publicly traded, U.S.-based life and annuity issuers that have posted third-quarter results in the past two weeks have reported net profits, and 10 of the 11 have reported operating profits.

Lincoln National Corp. (NYSE: LNC)

Lincoln Financial — which is officially known as Lincoln National Corp. — is reporting $398 million in net income for the third quarter on $4.8 billion in operating revenue, compared with a $161 million net loss on $4.7 billion in operating revenue for the third quarter of 2019.

The Radnor, Pennsylvania-based company says “product actions taken to reflect lower interest rates” led to a sharp drop in fixed annuity sales.

Lincoln’s annuities unit is reporting $196 million in pre-tax operating income on $1.1 billion in operating revenue, up from $168 million in pre-tax operating income on $1.1 billion in revenue for the year-earlier quarter.

Commissions incurred fell to $248 million, from $295 million.

Here’s what happened to deposits into the two major classes of annuities between the third quarter of 2019 and the latest quarter:

Life

Lincoln’s life unit is reporting a $311 million pre-tax operating loss on $2.1 billion in operating revenue, compared with a $245 million pre-tax operating loss on $2.1 billion in operating revenue for the year-earlier quarter.

Commissions incurred fell to $171 million, from $212 million.

Here’s what happened to first-year premiums for some types of life products between the third quarter of 2019 and the latest quarter:

American International Group (NYSE: AIG)

American International Group (AIG) is reporting $299 million in net income for the third quarter on $10 billion in revenue, compared with $973 million in net income on $13 billion in revenue for the third quarter of 2019.

The company’s life and retirement unit is reporting $975 million in adjusted pre-tax income on $3.9 billion in revenue, up from $646 million in adjusted pre-tax income on $3.8 billion in revenue for the year-earlier quarter.

The individual retirement unit is reporting $533 million in adjusted pre-tax income on $1.5 billion in revenue, up from $387 million in adjusted pre-tax income on $1.4 billion in revenue.

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

Equitable Holdings (NYSE: EQH)

Equitable Holdings Inc. is reporting a $705 million net loss for the third quarter on $1.8 billion in revenue, compared with a $306 million net loss on $3.1 billion in revenue for the third quarter of 2019.

The New York-based life insurer uses derivatives to protect annuities and other products against changes in stock prices, interest rates and other variables. The company includes fluctuations in the value of derivatives holdings in its revenue and net results.

The company’s operating earnings, which exclude the effects of “mark to market” derivatives accounting, fell to $568 million for the latest quarter, from $673 million.

Equitable’s individual retirement products unit is reporting $371 million in operating earnings for the latest quarter on $1.1 billion in revenue, compared with $465 million in operating earnings on $1.2 billion in revenue for the year-earlier quarter.

Individual retirement unit commission spending fell to $71 million, from $72 million.

The company’s protection solutions unit, which sells life insurance, is reporting $51 million in operating earnings for the latest quarter on $751 million in revenue, compared with $100 million in operating earnings on $855 million in revenue for the year-earlier quarter.

The unit’s commission spending fell to $40 million, from $41 million.

Prudential Financial (NYSE: PRU)

Prudential is reporting $1.5 billion in net income for the third quarter on $13 billion in revenue, up from $1.4 billion in net income on $12 billion in revenue for the third quarter of 2019.

The Newark, New Jersey-based life insurer says after-tax adjusted operating income, which excludes a number of gains and charges, held steady at about $1.3 billion.

The U.S. individual solutions division is reporting $509 million in adjusted operating income before income taxes on $2.8 billion in revenue, compared with $518 million in adjusted operating income before income taxes on $2.8 billion in revenue.

Individual Life Insurance

Here’s what happened to sales of key life products at Prudential between the third quarter of 2019 and the latest quarter:

Sales through Prudential’s own advisors fell to $32 million, from $38 million.

Sales through outside distributors increased to $140 million, from $137 million.

Individual Annuities

Variable annuity sales fell to $1.2 billion, from $2.3 billion.

Fixed annuity sales increased to $376 million, from $319 million.

Here’s what happened to individual annuity sales through specific distribution channels between the third quarter of 2019 and the latest quarter:

Brighthouse Financial (Nasdaq: BHF)

Brighthouse Financial is reporting a $3 billion net loss for the third quarter on $2.2 billion in revenue before “mark-to-market” adjustments for net investment income and net derivatives values changes, compared with $685 million in net income on $2.1 billion in revenue before mark-to-market adjustments for the third quarter of 2019.

The Charlotte, North Carolina-based life insurer says adjusted earnings less notable items, which exclude fluctuations in the estimated value of investments and derivatives, and some unusual gains and charges, increased to $388 million, from $260 million.

Sales of individual annuities increased to $2.3 billion in the third quarter, from $1.8 billion in the year-earlier quarter.

Sales of life insurance increased to $13 million, from $8 million.

Primerica (NYSE: PRI)

Primerica is reporting $112 million in net income for the third quarter on $568 million in revenue, compared with $96 million in net income on $521 million in revenue for the third quarter of 2019.

Here are how some of the Duluth, Georgia-based company’s distribution indicator numbers changed, year-over year:

The number of life insurance policies sold increased to 100,199 policies, from 73,434 policies.

Spending on sales-based sales commissions increased to $92 million, from $89 million.

Fidelity National Financial (NYSE: FNF)

Fidelity National Financial is a title insurer that recently acquired Fidelity & Guaranty. For now, the Jacksonville, Florida-based company is still releasing F&G’s earnings separately.

F&G is reporting $38 million in net income for the third quarter on $442 million in revenue, compared with $58 million in net income on $455 million in revenue for the third quarter of 2019.

F&G’s indexed annuity sales increased to $815 million, from $590 million.

Sales of multi-year guaranteed annuity (MYGA) contracts increased to $253 million, from $107 million.

American Equity Investment Life Holding Co. (NYSE: AEL)

American Equity Life is reporting a $667 million net loss for the third quarter on $799 million in revenue, compared with $37 million in net income on $643 million in revenue for the third quarter of 2019.

The net results were affected partly by a $205 million increase in the fair value of derivatives.

Operating results, which were calculated differently, amounted to a loss of $250 million, compared with $233 million in operating income for the year-earlier quarter.

Overall annuity sales fell to $574 million, down 56% from the total for the year-earlier quarter.

Anant Bhalla, the company’s chief executive officer, said, in a comment included in the company’s earnings announcement, that annuity sales were 3% higher than in the second quarter, and that application activity for new products has been strong.

Horace Mann Educators Corp. (NYSE: HMN)

Horace Mann is reporting $37 million in net income for the third quarter on $337 million in revenue, up from $25 million in net income on $337 million in revenue for the third quarter of 2019.

Horace Mann sells insurance and annuities to teachers and other school employees.

The Springfield, Illinois-based company’s retirement unit is reporting $7.8 million in core earnings on $137 million in annuity contract deposits and $8 billion in assets under management, up from $5.9 million in core earnings on $128 million in sales deposits and $7.9 billion in assets a year earlier.

The total number of annuity contracts in force increased to 230,000, from 227,000.

Here’s what happened to contract deposits for two types of annuities between the third quarter of 2019 and the latest quarter:

Core earnings at the life insurance unit fell to $4.3 million on $27 million in premiums and contract deposits, from $5.1 million on $28 million in premiums and contract deposits.

The number of life insurance policies in force fell to 201,000, from 202,000.

Life sales fell to $2.7 million, from $4.4 million.

Horace Mann noted that mortality costs in the third quarter were in line with expectations.

Sales of supplemental insurance products fell to $1.4 million, from $3.6 million, because of the effects of the COVID-19 pandemic on sales reps’ ability to get into school buildings.

FBL Financial Group (NYSE: FFG)

FBL is reporting $21 million in net income for the third quarter on $198 million in revenue, compared with $25 million in net income on $185 million in revenue for the third quarter of 2019.

FBL’s annuity unit is reporting $19 million in pre-tax adjusted operating income on $53 million in revenue, up from $8.1 million in pre-tax adjusted operating income on $51 million in revenue for the year-earlier quarter.

The annuity unit is reporting that commission spending, net of deferrals, fell to $320,000, from $405,000.

The number of direct annuity contracts fell to 50,217, from 52,914.

First-year premiums for fixed-rate annuities increased to $14 million, from $13 million.

FBL’s life unit is reporting $2.6 million in pre-tax adjusted operating income on $111 million in revenue, compared with $14 million in operating income on $105 million in revenue for the year-earlier quarter..

At the life insurance unit, commission spending, net of deferrals, held steady at about $4.5 million.

The number of traditional life policies in force fell to 363,880, from 365,099.

The number of universal life policies in force increased to 74,450, from 71,367.

Here’s what happened to first-year premiums for some types of life products between the third quarter of 2019 and the latest quarter:

Kansas City Life Insurance Company (OTCQX: KCLI)

Kansas City Life Insurance Company says COVID-19 has started to lead to an increase in death benefits, but it did not quantify the effects of pandemic-related death benefits on its latest results.

The Kansas City, Missouri-based life insurer is reporting a $1.2 million net loss for the third quarter on $128 million in revenue, compared with $4.5 million in net income on $126 million for the third quarter of 2019.

Correction: Brighthouse’s net income for the third quarter of 2019 was given incorrectly in an earlier version of this article. The correct figure is $685 million.

— Read Q3 Life, Health and Annuity Earnings Season Calendar, on ThinkAdvisor.

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