Life Insurance Blog News: Life Insurers Have Cash, Need to Spend

Fourth-quarter results saw moderate book value growth for most major life insurers.

With about a dozen major life insurers reporting earnings during the past two weeks, the industry appears less concerned with the credit losses that dominated recent earnings periods, turning its attention instead to how best to deploy billions in recently raised capital.

Though most reported book value gains relative to their positions at the end of the third quarter, the gains have been more modest than in recent quarters. Topping the group in book value growth was Aflac Inc., which posted book value per share of $17.96 at year-end, up 6.6% from Sept. 30, 2009. Others seeing book value growth during the quarter include Principal Financial Group Inc., up 5.5%, and Unum Group, up 3.1%.

MetLife Inc. – which may use some of its own stock as part of a rumored $15 billion acquisition of American International Group Inc.’s American Life Insurance Co. – saw a 4.6% decline in book value in the quarter, ending the year at $37.54 per share. During the company’s Feb. 3 conference call, CFO William Wheeler said the drop was “almost entirely driven by an overall increase in interest rates during December,” moving the company’s general account to a small unrealized loss at the end of the quarter, which had since swung back to an unrealized gain.

MetLife also has been one of few life insurers thus far to post a drop in fourth-quarter net income, falling 68% from the fourth quarter of 2008 to $313 million in the most recent quarter. Only Assurant Inc. has posted a steeper decline, with net income of $11.9 million in the fourth quarter of 2009, down 92% from the year-ago period.

Several life insurers announced profits in the most recent period after reporting net losses in the fourth quarter of 2008. They include The Hartford Financial Services Group Inc., with $557 million of net income, compared with an $806 million net loss a year earlier. Lincoln National Corp. swung to a $102.3 million gain after a $505.5 million loss a year earlier, while Ameriprise Financial Inc. and Genworth Financial Inc. announced net income of $274 million and $75 million, respectively, after recording net losses of $399 million and $321 million, respectively, in the fourth quarter of 2008.

Finding themselves in better capital positions than a year earlier, insurers have been challenged to find ways to best deploy their cash. Among those drawing down their holdings of cash and cash equivalents during the quarter were Unum, whose cash holdings dropped 67.5% from the third quarter to $71.6 million at year-end; StanCorp Financial Group Inc., down 47.4%; MetLife, down 35.0%; Principal Financial, down 30.9%; and Genworth, down 30.0%.

Unum CFO Richard McKenney said on a Feb. 3 conference call that the company would continue to have “a conservative stance regarding deploying our excess capital, specifically through share repurchases” but added that he also recognized “the cost of maintaining this posture.”

Aflac, which raised $400 million through a December 2009 debt offering, started to deploy those funds almost immediately with a $500 million contribution to its principal life insurance subsidiary, raising its risk-based capital ratio by 40 points to 475%. Principal Financial similarly downstreamed $300 million from its holding company to its life company, which it estimated will have a risk-based capital ratio between 415% and 425%. Genworth, which saw its life company’s risk-based capital ratio deteriorate modestly from 370% to an estimated 365% during the quarter, announced it contributed $200 million from the holding company in January, which it intends to use for business growth in both life and long-term care.

Insurance operating subsidiaries also saw capital strengthening by way of recent regulatory efforts at the NAIC. MetLife, which invested $375 million of surplus notes in its Metropolitan Life Insurance Co. unit during the quarter, said consolidated risk-based capital would be roughly 400%, above the 355% to 375% the company anticipated, thanks to better-than-expected results from the re-rating of RMBS conducted on behalf of the NAIC by Allianz SE unit Pacific Investment Management Co. LLC.

The NAIC’s earlier addition of Realpoint LLC as an acceptable rating agency for CMBS also had an impact, with Principal Financial CFO Terrance Lillis suggesting it boosted the company’s risk-based capital ratio by 20 points.

Other companies cited a separate NAIC change allowing insurers to count more of their deferred tax assets toward their admitted capital base. StanCorp CFO Floyd Chadee said the change added $40 million of excess capital to its statutory units. Their consolidated risk-based capital stood at 353% after upstreaming $55 million to the holding company during the quarter.

But for companies with significant commercial mortgage loan portfolios, a separate NAIC change raising the minimum mortgage experience adjustment factor had the opposite effect on regulatory capital levels. Genworth CFO Patrick Kelleher reported that the company received $85 million in regulatory capital benefit from new ratings on its RMBS and CMBS, but when the higher MEAF minimum was also taken into account, the combined changes “had almost no impact on required funding at our target 350% RBC level.”

Source: LexisNexis

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