Better days seen for life, annuity insurers, A.M. Best says

2008 and first-quarter results were dismal, but ratings agency sees a silver lining

Jun 26, 2009 @ 2:47 pm

By Darla Mercado

As life and annuity insurers emerge battered from 2008 and the first quarter this year, there appear to be some hints of recovery amid the wreckage, according to a report from A.M. Best Co.

The Oldwick, N.J.-based ratings agency surveyed 18 life and annuity carriers for a report titled “Life/Annuity Companies Adjust to Volatile Markets.” Among those insurers, net income was $91.5 million for 2008, with net realized capital losses hitting $19.6 billion.

The first quarter of this year ended on a dismal note, as the 18 insurers racked up some $2.6 billion in losses and a net realized capital loss of $1.99 billion, the report said. Among the hardest hit were Allstate Corp. of Northbrook, Ill., which had a $1.68 billion loss last year, along with The Hartford (Conn.) Financial Services Group, which had a loss of $2.75 billion.

Still, there were some bright spots — MetLife Inc. of New York brought in $3.21 billion in net income last year.

Similarly, falling equity markets also trimmed sales, fee-based revenue and assets under management for insurers in the first quarter.

A.M. Best also has an eye on emerging investment risks in high-yield debt and equity, as well as in asset-backed securities and commercial mortgage backed securities. Several insurers remain “significantly exposed” to subprime and Alt-A mortgages, the ratings agency said in its report.

Nevertheless, there is a silver lining.

The report noted that credit spreads are narrowing and that assets under management are slowly climbing as the market flirts with the possibility of recovery. Insurers are able to raise money through equity and debt offerings now that the capital markets are thawing, the report noted.

A.M. Best also said that insurers are concentrating on core product lines instead of venturing into new businesses. To beef up capital, life and annuity insurers now want to grow organically rather than through acquisitions.

The report also noted that the fundamentals of the industry’s major business lines are still solid, though that isn’t the case for variable annuities and asset management.

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