The U.S. life and health (L&H) industry saw its income result declined by 2.8% in 2017 from the prior year, however, a $7.9 billion improvement in net investment income served to offset much of the decline, according to A.M. Best.
A.M. Best detailed the sector’s preliminary financial results in a recent report, highlighting significant changes in the U.S. L&H space in 2017, including “a combined $17 billion decline reported by Prudential Annuities Life Assurance Corporation and MetLife, a total decline of $27.1 billion at Transamerica Life Insurance Company and Forethought Life Insurance Company, related to reinsurance agreements entered into in 2017.”
Meanwhile, AGC Life Insurance Company saw a $14.7 billion increase as $14 billion of reserves were ceded in 2016.
In addition, agreements made in 2016 by Genworth Life and Annuity, Pruco Life, and Hannover Life Reassurance, which resulted in income that was not repeated in 2017, contributed to the majority of the decline in commissions and expense allowances on reinsurance business ceded, which further impacted total income, according to A.M. Best.
Total incurred benefits increased by 3.3% in 2017, although this was offset by an 11.8% decline in other benefits as Transamerica, Prudential Annuities, Forethought, Brighthouse, and Massachusetts Mutual reported a combined $46.4 billion decline in aggregate reserves for life and accident and health contracts.
The report further highlighted that 1.8% of total expenses declines came from a combination of a $12.9 billion decline in commissions and expense allowances on assumed reinsurance at Hannover Life Reassurance, Protective Life, and Prudential Annuities, coupled with a combined $18.4 billion of additional net transfers to separate accounts at Pruco Life, John Hancock, and Met Life.
The industry’s pretax net operating gain dropped from the prior year by 14.6%, or $53.2 billion, but a $4.6 billion reduction in federal and foreign taxes and a $4 billion decrease in net realized losses, resulted in 2017 total industry net income declining just 1.4% from 2016, to $33.9 billion.
Therefore, despite declining income results, the U.S. L&H industry’s capital and surplus increased by a total $11.2 billion to reach $372.5 billion by the end of 2017, boosted by improved investment gains and decreases in net realized losses and taxes.
Furthermore, the report notes a $9 billion improvement in unrealized gains and a 5.3% reduction in stockholder dividends that also offset the declines in net income, asset valuation reserve, and contributed capital.
In addition, a downwards trend in financial results in the fourth quarter mitigated large upturns reported in the first nine months, resulting in moderated overall net income results for 2017 in what became a year of very mixed results for U.S. L&H insurers and reinsurers.
Data from A.M. Best’s Special Report is derived from companies’ annual statutory statements that represent an estimated 89% of total industry premiums and annuity considerations.
