roll in from US life insurers, the news is not good, with most
failing to meet analysts’ or even their own earnings expectations
by a wide margin. Staff lay-offs are now the order of the day as
insurers brace for what may be an even tougher 2009. Charles Davis
Early signs of fourth-quarter 2008 results
are not encouraging for US life insurers, who continue to struggle
with mounting losses from securities and the deterioration of the
The first official shot across the bows came
on 4 February when insurer Prudential Financial announced it had
lost an eye-popping $1.64 billion, or $3.85 per share, compared
with a profit of $792 million, or $1.75 per share, a year ago.
Analysts were expecting a loss of $1.19 per share.
The company’s individual life and group
insurance division posted adjusted operating income of $78 million,
compared with $185 million in the prior-year period. The news was
even more disturbing given that Prudential forecast an adjusted
operating loss of between $1.10 and $1.30 a share in the period,
excluding certain items, as recently as December.
Job cuts planned
Even before its fourth-quarter numbers came
in, insurer Allstate announced it planned to cut about 1,000 jobs
in its financial arm over the next two years through a combination
of attrition and redundancies.
Allstate has about 38,000 full-time workers
company-wide, including about 3,800 at Allstate Financial, which
provides such products as life insurance, supplemental accident and
health insurance and annuities. The job cuts were accompanied by a
$1.13 billion fourth-quarter net loss, as it wrote down the value
of the very sorts of investments that have dogged US insurers in
Allstate emphasised its core insurance
underwriting operation “continued to produce strong underlying
profitability”, but while earnings from underwriting slipped only
modestly in the fourth quarter, to $243 million from $276 million,
the insurer’s investment portfolio took heavy losses from the stock
market’s plunge, and the fallout from those investments did the
damage to the company’s earnings.
Net investment income, from sources such as
dividends and interest on Allstate’s large bond portfolio, declined
18 percent in the latest quarter, to $1.33 billion, fueled in large
part by $1.93 billion in “realised” capital losses – losses from
selling securities at a loss, or from asset write-downs.
Days earlier, MetLife, the US’ largest life
insurer, forecast fourth-quarter and 2009 earnings below analysts’
estimates, but reassured investors it remains well capitalised and
expects a higher rate of growth than its competitors.
Despite lowering its expectations somewhat,
MetLife said net profit in the fourth quarter would be up from a
year earlier, helped by investment gains.
MetLife forecast fourth-quarter net income of
$1.2 billion to $2 billion, or $1.50 to $2.55 a share, up from $1.1
billion, or $1.44 a share, a year earlier. Premiums, fees and other
revenue are expected to rise to between $7.9 billion and $8.5
billion, from $7.7 billion.
The company expects net realised investment
gains of $1.2 billion to $1.8 billion, reflecting relatively modest
credit losses and substantial derivative gains.
MetLife said it forecasts fourth-quarter
operating results ranging from a loss of $50 million to a profit of
$150 million, or a loss of 5 cents a share to a profit of 20 cents
a share. Analysts expected a profit of 83 cents a share.
MetLife forecast 2009 operating earnings of $3
billion to $3.3 billion, or $3.60 to $4.00 a share.
“With an 11 percent expected increase in top
line results for 2008, MetLife’s core businesses continued to
perform very well during the year, despite strong economic
headwinds,” said Metlife chairman, CEO and president C Robert
Henrikson in a statement.
“Furthermore, with a very strong excess
capital position, a well-diversified investment portfolio and a
diverse mix of businesses, MetLife continues to stand apart in the
industry. We are well positioned for the future, though clearly we
are not immune from several market factors impacting our bottom
line results this quarter.”
Financial planning and insurance services
specialist Ameriprise Financial reported that it lost $369 million,
or $1.69 per share, in the fourth quarter. Comparing those results
to the prior-year period, when the company posted net income of
$255 million, or $1.08 per share, illustrates how far the stock
market and financial sector have fallen.
Ameriprise took $420 million in pretax, net
realised investment losses and is cutting costs across the
business, having announced 300 layoffs the week before its earnings
report. Total net revenue declined 40 percent, to $1.4 billion in
the fourth quarter. Excluding market factors, core revenue was $1.8
billion, down 21 percent from the same period in 2007.
During a conference call following the
earnings announcement, Ameriprise executives underscored the fact
that, all things considered, the firm is in better shape than many
of its competitors. Its balance sheet remains strong, with $6.2
billion in cash and cash equivalents, and it has applied for the
federal government’s Troubled Assets Relief Program as a backup.
The company’s investment portfolio is also strong, with just 5
percent of total assets rated below investment grade and less than
1 percent exposed to subprime mortgage assets.
Life insurers not alone
Life insurers can take some solace
in the fact that the economic contagion knows no bounds. Property
and casualty insurer Cigna, out in front of its own earnings
report, said it would cut about 1,100 jobs and consolidate some
offices because of the flagging economy and will not give pay
raises to salaried employees in 2009.
Insurers Aetna and The Hartford also recently
announced they were laying off workers to reduce expenses, protect
profits and remain competitive.
Cigna expects to record an after-tax charge of
$30 million to $40 million in the fourth quarter of 2008 as a
result of the cost reduction efforts. About 80 percent of the
charge represents severance and other expenses related to the
The company signaled additional layoffs might
be possible this year, saying in a federal filing: “The company’s
review is ongoing and there may be additional charges in 2009.”
Safe to say that such reviews are ongoing
throughout the insurance industry, as 2009 augurs to be one of the
most troubled years in financial services history.