By Cyril Tuohy
Third quarter net income for U.S. life insurers rocketed to $6.4 billion, an increase of 188 percent over $2.2 billion in the year-ago period, thanks to big gains by AIG, MetLife and Prudential, Moody’s Investors Service reported.
Excluding these three companies, net income from the rest of Moody’s 19 rated life insurers was up 10 percent compared to the year-ago period.
“Industry results were helped by higher fee income from increasing account values, higher new money yields, good underwriting experience and modest net positive actuarial assumption updates,” Moody’s analysts wrote in a note to clients.
AIG, MetLife and Prudential were responsible for contributing half of the $4.2 billion improvement in net income, Moody’s said, with MetLife seeing a decline in one-time charges compared to the year-ago period and Prudential benefitting from changes in foreign exchange rates.
AIG posted net income of $1.2 billion, an increase of 40 percent from $889 million in the year-ago period. MetLife reported net income of $942 million, compared to a $984 million loss in the third quarter of 2012. Prudential said that net income reached $981 million, compared to a loss of $627 million in the year-ago period.
In percentage terms, the largest gains in third quarter net income went to AIG’s life and retirement division, Ameriprise and Protective, the ratings agency also said.
Strong stock market gains helped insurers’ bottom lines, in addition to income from fee-based products and a big jump in fixed annuity sales which benefitted from higher interest rates. Sales of individual life products also grew by 6 percent in the third quarter compared to the year-ago quarter.
Moody’s also said that so far in 2013, net income results for life insurers have been uneven. A stronger economy in 2014 will help stabilize results, Moody’s said.
In a separate note, Moody’s also said that low interest rates continue to dampen life insurer’s results, and low rates have forced carriers to boost their reserves as they continue to pay out high guarantees made years ago.
“Although insurers’ asset-liability duration matching has provided an element of protection, there is minimal hedging for this continued low rate scenario in the industry, thus, the need to add reserves,” Moody’s vice president and senior credit officer Neil Strauss said in a statement.
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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