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COVID-19 Hit 2020 U.S. Life Results Hard: Fitch Analysts

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What You Need to Know

  • Life subsidiaries reduced dividend payments to parent companies.
  • Total adjusted capital increased.
  • Return on total adjusted capital fell.

The COVID-19 pandemic contributed to a  big drop in 2020 in the statutory performance of U.S. life and annuity issuers, according to analysts at Fitch Ratings.

Total net gains from operations at the life insurers Fitch rates fell to $27 billion last year, down 40% from the total for 2019.

David Gorak and Douglas Baker, the analysts, have included that figure in a special report based on a review of company financial reports for 2020.

The analysts prepared the report to look at the insurers’ statutory capital and related performance measures.

The net gains from operations figure includes revenue an insurer gets from premiums, revenue, net investment income and capital gains and losses, minus benefits payments, transfers on account of policy loans, state and federal taxes, changes in reserves, and other costs.

The 2020 decrease was “largely due to higher claims paid, primarily as a result of increased mortality from COVID-19,” the analysts write.

More on this topic

Two Kinds of Accounting

Publicly traded life insurers and some other life insurers prepared their financial reports using the same U.S. Generally Accepted Accounting Principles (GAAP) rules that apply to all U.S. companies with publicly traded stock.

All U.S. life insurers file financial statements prepared using state insurance regulators Statutory Accounting Principles (SAP) rules, in additional to any financial statements prepared using GAAP rules.

SAP financial statements are important because they have a direct effect on how a life insurer is regulated.

More SAP Conclusions

The Fitch analysts found that rated U.S. life insurers increased their total SAP statutory capital 5.8% last year, to $437, from $418 billion a year earlier, in spite of the drop in net operating gains.

The companies’ total risk-based capital ratio, a measure of how prepared insurers are to meet their insurance and annuity operations, fell to 436%, from 441%.

Total capital increased, in spite of the decrease in net gains, partly because parent companies transferred less money into life subsidiaries, and partly because the life companies reduced the amount of dividends they sent to their parent companies, the analysts write.

(Image: NAR Studio/Shutterstock)