Moody's Rating Services has released a report on Life Insurers 2009 Fourth Quarter Results - which finds that that Life Insurance Companies are stronger than a year ago.

New York, February 24, 2010 -- In general, quarterly operating earnings of U.S. life insurers have been stabilizing or improving during 2009, and -- despite some variability -- the fourth quarter affirmed that trend, Moody's Investors Service says in a new report.

There are several reasons for the industry's healthier financial condition. The rating agency cites a crucial external one -- the less volatile and higher levels of the equity markets, which have taken much of the pressure off GAAP and statutory earnings. Also, companies have been actively adjusting the risk profiles of their variable annuity products, both through re-pricing and product design changes.

Life insurance sales, which declined by record levels in the early part of 2009, have stabilized and — in some cases — have begun to increase. Annuity sales in the fourth quarter either held steady with the third quarter of 2009 or saw a small pick-up.

"In general, Q4 2009 results were in line with our expectations and the guidance provided by the insurers," states Vice President Ann Perry, the report's author. She explains that several companies posted stronger Q4 versus Q3 2009 net income (Genworth, Hartford, MetLife, Protective, Prudential, Torchmark), driven by a combination of lower investment losses and stronger operating earnings. Almost all companies posted stronger net income for Q4 2009 compared with Q4 2008.

"The industry's earnings improvement since early 2009 is an encouraging sign that the very worst in investment losses is likely over," Ms. Perry says. In addition, she thinks that it demonstrates business lines are stabilizing and that they are positioned for future growth. "However," the analyst adds, "we believe that returns on equity will be less robust going forward and that the rate of future earnings growth will be less than the industry has experienced in the past."

Despite the improved performance in Q4 2009 results, Moody's continues to maintain its negative outlook for the sector; it expects a gradual and uneven recovery — one hobbled by the weak economy and by constrained internal capital generation at the life companies.

Although investment losses are showing signs of leveling off or declining in certain sectors, such as corporate bonds and alternative investments, the rating agency points out that losses in commercial real estate-related investments are now increasing. "Although we expect investment losses to decline from the extremely high levels of 2008 and 2009," Ms. Perry states, "they are likely to remain well above the historical average throughout 2010."

The report is titled "Moody's Comments on U.S. Life Insurers' Q4 2009 Earnings."

Tony Steuer, CLU - Life Insurance Consultant