By Cyril Tuohy
Moody’s Investors Services said net income at 19 of the life insurers tracked by the ratings service hit $5.6 billion in the fourth quarter, an increase of 56 percent compared with the year-ago period. This was due to higher fee income, rising interest rates and favorable underwriting trends.
Full-year 2013 net income rose to $19.8 billion, an increase of 22 percent compared with 2012. That was thanks to the performance of three dominant companies in the segment: AIG life and retirement, MetLife and Prudential, Moody’s added.
Overall industry operating earnings – money earned from continuing operations – reached $29 billion in 2013, an increase of 15 percent compared with 2012, Moody’s also reported.
“Greater fee income, positive net underwriting experience and higher asset prepayments and alternative asset returns that boosted investment income all contributed to the increase,” Moody’s said in a report to investors.
The strong results are not surprising given the performance of the Standard & Poor’s 500 index, which rose 30 percent last year, and the rising interest rate environment. Especially in the second half of 2013, the industry found itself cruising in the ideal gear: a rising stock market and slowly rising interest rates.
“Highlighting the positive impact of rising interest rates, fixed annuity sales rose by 23 percent in 2013; however, variable annuity sales declined by 15 percent as industry players continued to actively manage variable annuity production by reducing benefits and increasing pricing,” said Moody’s associate analyst Weigang Bo.
Individual life sales dipped by 7 percent in 2013, as insurers raised prices and shifted resources to products with higher returns, Moody’s also said.
Fixed annuity sales, however, were up 23 percent last year compared with 2012, as higher interest rates boosted the numbers, particularly in the second half of the year, Moody’s said in its 14-page report to clients.
Excluding AIG’s life and retirement segment, MetLife and Prudential, fourth quarter 2013 net income rose 31 percent compared with the year-ago quarter, Moody’s said. Without the “big three,” full-year 2013 net income was flat compared with 2012, Moody’s also said.
With the recovery of the real estate market, insurance carriers reported higher investment income from their mortgage units and bond prepayments, and some insurers also posted strong returns from their alternative asset classes, Moody’s said.
Insurers are raising rates on group disability and long-term care products, and a drop in the value of impaired assets – assets that don’t perform – also trimmed losses. Impairments dropped to $1.1 billion last year, from $4 billion in 2012, Moody’s also said.
“Industry profitability will likely expand in 2014, given a more positive global economic outlook and fewer disruptions expected for U.S. fiscal policy through early 2015,” Bo wrote in the report.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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