Impaired intangible assets stress insurance earnings, Moody's says

Impaired intangible assets will continue to pressure insurance companies as earnings continue to erode, according to a report from Moody’s Investors Service in New York.
APR 29, 2009
Impaired intangible assets will continue to pressure insurance companies as earnings continue to erode, according to a report from Moody’s Investors Service in New York. Intangible assets include goodwill generated by branding and market penetration. It also encompasses the value of business acquired and deferred-acquisition costs. The former is the present value of margins or profits expected from insurance contracts that are acquired in a business combination, while the latter represents the deferred sales costs that are related to gaining new business. These intangible assets have become impaired, and though charges related to these assets are non-cash in nature, they affect carriers’ earnings and equity. Meanwhile, declining equity could later lead to insurers’ breaching their debt covenants or loan agreements, Moody’s noted in its April 27 report, which covered life, multiline and European carriers. Though the firm’s analysts will look through these non-cash charges to reveal the underlying value of a business, write-downs of these intangible assets often indicate that the future profits at a carrier are bleaker than anticipated by management. Even if the charges are non-cash, negative credit implications can follow asset impairment, Moody’s wrote. For instance, impairments of goodwill could indicate that there has been a change for the worse in operational factors that could hurt profitability. Additionally, deferred acquisition costs that “unlock” — or change — to reflect updated expectations in the light of different market assumptions have been large as of late, primarily as future gross profits in variable annuity businesses have fallen. Charges related to intangible asset write-downs will likely continue this year as profitability continues to slide and losses continue to rise, according to the Moody’s report. The charges will likely show up in first-quarter earnings in coming weeks, according to Moody’s.

Latest News

Five-person Raymond James team jumps to Janney in Maryland
Five-person Raymond James team jumps to Janney in Maryland

The group led by a 37-year industry veteran brings $470 million in assets to the Philadelphia-based broker dealer.

$20B Merit looks to next phase as Constellation takes minority stake
$20B Merit looks to next phase as Constellation takes minority stake

The Atlanta, Georgia-based national wealth firm revealed its new PE partner as prior backers Wealth Partners Capital Group and HGGC’s Aspire Holdings exited their investments.

$350M father-son duo hops from Osaic to Equitable Advisors
$350M father-son duo hops from Osaic to Equitable Advisors

The latest departures in Ohio mark another setback for the hybrid RIA, which is looking to "expanding its presence across all models and segments of the wealth management industry.”

Fresh off HPS acquisition, BlackRock inks deal for $7.3B ElmTree Funds
Fresh off HPS acquisition, BlackRock inks deal for $7.3B ElmTree Funds

The St. Louis-based real estate investment firm gives the asset management giant a valuable access point to the roughly $1 trillion net lease market.

SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees
SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees

Eliseo Prisno, a former Merrill advisor, allegedly collected unapproved fees from Filipino clients by secretly accessing their accounts at two separate brokerages.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.