Preliminary Results Show U.S. Life/Annuity Industry’s Net Income More Than Doubled in 2017
December 6, 2017 by Best’s Financial Strength Rating
A.M. Best’s First look report is designed to provide an early insight into the current financial state of the U.S. life/annuity industry. the data contained in this report are from companies whose nine months 2017 interim period statutory statements were received as of November 27, 2017. These companies represent an estimated 91% of total industry premiums and annuity considerations and 96% of industry capital and surplus.
During the first nine months of 2017, net income for the industry more than doubled as a $26.6 billion drop in total income was more than offset by a $44.3 billion decrease in total expenses and federal and foreign taxes. premiums and annuity considerations declined 8% from the same period of 2016 mainly due to reinsurance transactions that shifted premiums to entities not included in our population of statutory accounting life insurance companies.
This includes the recapture of risks associated with variable annuity living benefits by prudential annuities life assurance, causing a significant increase to premium income, which was onetime in nature and not repeated in 2017.
Impacts on Net Income
In addition, we saw insurers cede blocks of business during the year to their offshore nonstatutory captive entities for tax efficiency purposes. Premiums have also been impacted in recent periods by the softening of annuity sales, which began in 2016 and continued into 2017. Net income was further impacted by a 28.1% decline in commissions and expense
allowances on reinsurance ceded due to 2016 reinsurance agreements at Genworth Life and annuity and prudential’s recapture, which resulted in $6 billion of income in the nine-month 2016 period, not repeated in 2017. a 31.9% increase in other income driven by Genworth’s $9 billion increase in reserve adjustments on reinsurance ceded was not enough to overcome these declines, resulting in a 4.3% reduction in total industry income compared to the prior year period.
A 17.3% increase in surrender benefits was offset by a 26.8% decline in other benefits as Transamerica, Prudential annuities, Brighthouse, and Forethought reported a combined $42.7 billion decline in aggregate reserves for life and accident and health contracts, mainly due to the aforementioned transactions, resulting in total incurred benefits declining 2.9% from the prior-year period. the $5.4 billion decline in commissions and expense allowances on assumed reinsurance at protective life and prudential annuities, coupled with a combined $12.0 billion of additional net transfers to separate accounts at Pruco life and Met life, resulted in total expenses declining 7.2%.
Despite the drop in income, the reduction in expenses drove pretax net operating gain up 55% over the prior year to $45.3 billion. A $1.6 billion reduction in federal and foreign taxes and relatively unchanged industry net realized
losses resulted in total industry net income of $30.9 billion, a signifiant increase from $13.2 billion for the prior-year period.
Capital and surplus for the industry increased by $19.2 billion since the start of the year and reached $399.7 billion as of September 2017. the large improvement in net income and a 15.6% reduction in stockholder dividends offset steep declines in unrealized gains and contributed capital.
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