A.M. Best Special Report: Climate Remains Challenging; U.S. Government Steps In.OLDWICK, N.J. -- U.S. life and annuity companies face an increasingly complex macroeconomic mac·ro·ec·o·nom·ics n. (used with a sing. verb) The study of the overall aspects and workings of a national economy, such as income, output, and the interrelationship among diverse economic sectors. climate, with negative operating and net income trends and continuing adverse capital market conditions through third quarter 2008. Amid failing financial institutions and impending im·pend intr.v. im·pend·ed, im·pend·ing, im·pends 1. To be about to occur: Her retirement is impending. 2. U.S. government intervention, financial flexibility remains diminished. Significant realizable capital erosion remains a major risk, both from a ratings and an operating perspective. * Six-month 2008 net income for the major U.S. publicly traded life and annuity companies included in this report was down 63% from a year earlier at $3.1 billion, while net operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. fell 16% to $7.1 billion. * Sales of individual variable annuities Variable annuities Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. through the first six months were down 12.5%, while sales of individual fixed annuities Fixed annuities Contracts in which an insurance company or issuing financial institution pays a fixed dollar amount of money per period. were up 34.2%. * Investment risk remains heightened as asset prices continue to fall, and more write-downs are likely. Realized losses Realized Loss A loss recognized when assets are sold for a price lower than the original purchase price. Notes: A portion of the realized loss may be applied against a capital gain or realized profit to reduce taxes. through June 30, 2008 were $7.9 billion. * Merger and acquisition activity has slowed, a trend A.M. Best expects to continue in the near term. * A.M. Best believes additional risks are emerging in the life and annuity sector. As companies' enterprise risk management programs become more sophisticated, some organizations have adopted more assertive capital management strategies and have increased their appetites for risk, especially publicly traded entities. * A.M. Best's negative rating outlook for the U.S. life/health insurance industry (revised from stable as of September 18, 2008) means that, in the near to medium term, A.M. Best expects to take more negative rating actions than positive rating actions. BestWeek subscribers can download a PDF (Portable Document Format) The de facto standard for document publishing from Adobe. On the Web, there are countless brochures, data sheets, white papers and technical manuals in the PDF format. copy of all full special reports or a combination of the report and all related spreadsheet files of the report data at no charge at www.bestweek.com. Nonsubscribers can visit www.bestweek.com for pricing information or call customer service for more information at (908) 439-2200, ext. 5742. Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com. |
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