Life Insurance Companies Now Have Cash And Need To Spend It

With about a dozen big life insurers reporting good earnings recently, the life insurance industry appears less concerned with the credit losses that dominated recent earnings periods, and now it is turning its attention instead to how best to profit further from billions in recently raised capital.

Though most of the big life insurance companies reported book value gains relative to their positions at the end of Q3, the gains have admittedly been more mediocre than in recent quarters.

Finding themselves in better capital positions than a year earlier, insurers have been challenged to find ways to best deploy their cash.

Among those drawing down their holdings of cash and cash equivalents during the quarter were Unum, whose cash holdings dropped 67.5% from the third quarter to $71.6 million at year-end; StanCorp Financial Group Inc., down 47.4%; MetLife, down 35.0%; Principal Financial, down 30.9%; and Genworth, down 30.0%.

Aflac, which raised $400 million through a December 2009 debt offering, started to deploy those funds almost immediately with a $500 million contribution to its principal life insurance subsidiary, raising its risk-based capital ratio by 40 points to 475%.

Principal Financial similarly downstreamed $300 million from its holding company to its life company, which it estimated will have a risk-based capital ratio between 415% and 425%.

Genworth, which saw its life company's risk-based capital ratio deteriorate modestly from 370% to an estimated 365% during the quarter, announced it contributed $200 million from the holding company in January, which it intends to use for business growth in both life and long-term care.

Insurance operating subsidiaries also saw capital strengthening by way of recent regulatory efforts at the NAIC. MetLife, which invested $375 million of surplus notes in its Metropolitan Life Insurance Co. unit during the quarter, said consolidated risk-based capital would be roughly 400%, above the 355% to 375% the company anticipated, thanks to better-than-expected results from the re-rating of RMBS conducted on behalf of the NAIC by Allianz SE unit Pacific Investment Management Co. LLC.

Topping the group in book value growth was Aflac Inc., which posted a book value per share of $17.96 at year-end 2009, higher 6.6% from Sept. 30, 2009. Others seeing modest book value growth during the Q4 include Principal Financial Group Inc., up 5.5%, and Unum Group, up 3.1%.

MetLife Inc. - which is rumored to have used some of its own stock as part of a speculated $15 billion takeover of American Life Insurance Co. - saw a 4.6% decrease in book value in the quarter, ending the year at $37.54 per share. The drop was "almost entirely driven by an overall increase in interest rates during December," moving the company's general account to a negligible loss at the end of the quarter, which had since swung back to an unrealized gain.

Several life insurers announced recovered profits in the most recent period after reporting net losses in the fourth quarter of 2008. They are: The Hartford Financial Services Group Inc., with $557 million of net income, compared with an $806 million net loss a year earlier; Lincoln National Corp. swung to a $102.3 million gain after a $505.5 million loss a year earlier; while Ameriprise Financial Inc. and Genworth Financial Inc. announced net income of $274 million and $75 million, respectively, after recording net losses of $399 million and $321 million, respectively, in the fourth quarter of 2008.