U.S. Life: Operating Income Drops 10 Percent in 2016

Pretax operating income for 15 U.S. publicly traded life insurers declined 10 percent to $19.9 billion in 2016 compared to 2015, Fitch Ratings reported.

Net income dropped 30 percent to $14.5 billion, according to Fitch.

Plunging equity markets in the first half of 2016 later reversed course and interest rates rose in the second half of the year.

Still, lower equity market performance affects asset values, which affect fee income into asset-based retirement plans and asset management accounts.

"Results declined in 2016, but were in line with rating expectations," said Jamie Tucker, associate director of Fitch Ratings, in a news release.

Industry results were affected by actuarial assumption updates, particularly for Prudential Financial, Genworth Financial and MetLife, Fitch said.

Lower equity markets and confusion and uncertainty around the Department of Labor’s fiduciary rule affected variable annuity sales, Fitch said.

New sales of variable annuities last year fell 21.4 percent to $100.58 billion in 2016 compared to 2015, Morningstar reported last month.

'Modestly Improved' Results for 2017

Income generated by insurers is expected to end 2017 “modestly improved,” as rising interest rates and a more favorable regulatory environment benefit the life sector, Tucker said.

The Federal Reserve, which raised its short-term benchmark lending rate by a quarter percent in March, is expected to raise rates twice more this year, Fitch said.

The March unemployment rate dropped to 4.5 percent from 4.7 percent in February, the Department of Labor announced Friday. Unemployment is at its lowest level since May 2007.

Falling unemployment is a sign that that economy is heating up and could put more pressure on the Federal Reserve to raise rates.

The Trump administration has vowed to repeal financial regulations, which the industry considers burdensome.

DOL’s fiduciary rule, which had an applicability date of April 10, has been delayed to June 9.

Companies in the Fitch Ratings universe include Aflac, American Equity, Voya Financial, CNO Financial, Genworth Financial, Lincoln National, MetLife, Principal Financial, Protective Life, Prudential Financial, Reinsurance Group of America, Torchmark, Unum, Ameriprise and Primerica.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].