Posted on Oct 28, 2011 by Sergio Ulloa
As November approaches, many of the world most prominent multinational insurers are releasing their third quarter earnings reports, the cumulative results of which could present some interesting insights on the future of the international insurance industry.
Metlife, the United States' largest life insurance group, posted the most considerable gains this week. The New York based insurer announced on Thursday that net income had grown more than tenfold during the third quarter reporting period, beating market estimations on the back of substantial investment gains and the continued development of its international sales division from its Alico acquisition last year. For the three months ending September 30, Metlife earned US$3.55 billion, or US$3.33 per share, a significant improvement over the US$286 million, 32 cents a share, earned during the corresponding period in 2010. Total revenues meanwhile hit US$20.46 billion for the period, up from US$12.34 billion in the same quarter a year ago. The insurer also reported US$4.2 billion in total net derivative gains for the quarter, compared with a US$244 million loss last year.
Metlife attributed much of their quarterly success to their Alico acquisition and the impact this has had on the investment portfolio, which was up from US$383.2 billion a year ago to US$493.2 billion now at the end of the third quarter 2011. Metlife had long been looking to expand its international presence and distribution platform, and in 2010 the company decided to purchase American Life Insurance Company (ALICO) from AIG for US$15.5 billion
to achieve these objectives. The acquisition of Alico, which operates out of 50 countries, has given MetLife immediate access to new Asian, European, Middle Eastern
, and Latin American insurance markets and they been rewarded already as the international segment reported operating earnings had increased by US$578 million from US$189 million in the year-on-year for the quarter. This has come while the operating earnings in Metlife's home US market have fallen 23 percent to a comparable US$655 million, due to increased insurance reserves, high catastrophe losses and flagging consumer confidence.
This influx of new international business, led by the ALICO deal, has helped MetLife's premiums grow by a remarkable 41 percent year over year to a record US$12 billion in q3 2011. As the global economic order subtly changes in the wake of the 2007-2008 financial crisis, multinational insurers such as MetLife are finding value in re-positioning their activities to ensure that they have greater access to the emerging markets that are now providing all insurers with the most profound sales and earnings growth opportunities.
Companies active in the US health insurance sector have also put forth their third quarter earnings. This week, Aetna Inc reported US$490.4 million in earnings as well as a US$117 million after-tax gain for the period, due primarily to reduced claims exposure in the United States. The nation's third largest health insurer noted that while revenue and medical enrolment dropped during the quarter (by about 1 percent to US$8.4 billion and 18.2 million policyholders), disciplined underwriting and cost management trumped performance expectations and have enabled the company to raise its 2011 earnings forecast. The company's overall healthcare costs have in turn dropped by 5 percent to US$5.36 billion, mainly because insured Americans in general are choosing to file fewer health insurance claims.
The declining utilization of healthcare benefits in the US has been a recurring issue for the past few quarters as more Americans choose to abstain from elective treatment, doctors visits, and any other absence from work during these uncertain economic times. Aetna's total medical-benefit ratio, which is the amount of premiums actually paid out in patient medical costs, has fallen from 81.8 percent to 78.9 percent this year. The ratio was aided by a considerably higher reserve development, which indicated that the company had overestimated what it would in fact be paying out in patient claims. Because this lower-than-expected claims ratio has not however put any serious downward pressure on premium pricing, Aetna and its health insurance competitors are able to keep turning in strong performances. Analysts expect Aetna's 2012 operating earnings to further improve, due to an expected decline in medical claims trends coupled with constructive regulatory adjustments in medical claims expenses.
Aetna's two largest rivals based on enrolment and revenue, WellPoint and UnitedHealth, have also reported better than expected third quarter earnings and have raised their 2011 earnings reports in tow. On Tuesday, WellPoint noted that company enrolment had increased by 2 percent to 34.4 million members amid strong revenue performance for the quarter, with particular growth witnessed its newly acquired senior business
. The demand for Medicare-supplement insurance services offered by private companies will increase as the burgeoning ranks of US retirees have come to expect similar benefits to those they have enjoyed throughout their career and appear willing to pay for them. UnitedHealth were also able to beat quarterly performance expectations but warned that medical costs are expected to increase in the fourth quarter and will bite into earnings throughout 2012.
Insurance groups from America's greatest economic partner and rival China also presented quarterly performance figures this week. China Life Insurance Co, The mainland's largest life insurance firm, said that its net profits declined by 45.7 percent to CNY3.75 billion (US$586 million) during the third quarter. In a statement filing to the Shanghai Stock Exchange on Thursday, the company acknowledged that the decline in profit came as a result of declining investment returns and losses from asset devaluation. Overall, China Life's profits for the first three quarters have dropped by 33 percent annually to CNY 6.72 billion (US$1.03 billion), according to Chinese accounting standards. As this has happened however, the company's total insurance premiums have continued to rise, amounting to CNY262 billion (US$41.2 billion) at a 2.6 percent annual growth rate. China Life's performance relies heavily on investment income and thus it is more sensitive to stock-market swings than some of its domestic rivals. Going forward though, low interest rates and national and global economic volatility will require the company to be more disciplined than ever in their underwriting and investment decisions.
Ping An Insurance, the mainland's number two insurer, also reported a considerable 44 percent decline in third quarter profits this week. However, the source of these shortfalls was different to that of their big domestic rival China Life. According to a company filing, Ping An's earnings were hit by the one time CNY1.95 billion (US$310 million) acquisition cost of Shenzen Development Bank(SDB). Ping An completed its restructuring with SDB in July, with the banking business now contributing CNY5.32 billion (US$840 million) in earnings during the reporting period. Excluding the cost of the acquisition, Ping An said it would have recorded a 29.1 percent year-on-year rise in net profits attributable to shareholders worth CNY16.47 billion (US$2.59 billion). Ultimately the acquisition could prove fruitful to Ping An
as having a more diversified business portfolio will ultimately help protect the Chinese insurance giant from adverse global financial market volatility in the future.
Insurance Companies Mentioned
With over 140 years of insurance expertise, MetLife aims to be an innovator in the field of international Life insurance. Globally, MetLife is able to offer its clients accident and health insurance, life insurance, disability income protection, and retirement and savings products.
The American Life Insurance Company, known as Alico, provides a broad, innovative range of insurance and savings products for individual customers, corporate customers and high net worth clients. Their products include; health insurance, life insurance, savings plans, accident insurance, retirement planning and travel insurance among others services.
Aetna international health insurance Aetna is a leading global diversified health care benefits company head-quartered in the U.S., serving approximately 35.8 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, group life and disability plans, medical management capabilities and health care management services for Medicaid plans.
WellPoint is the largest health benefits company in USA, with more than 33 million members in its affiliated health plans. As an independent licensee of the Blue Cross and Blue Shield Association, WellPoint serves members as the Blue Cross licensee for California; the Blue Cross and Blue Shield licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri, Nevada, New Hampshire, New York, Ohio, Virginia, and Wisconsin. In a majority of these service areas, WellPoint does business as Anthem Blue Cross, Anthem Blue Cross Blue Shield or Empire Blue Cross Blue Shield. WellPoint also serves customers throughout the country as UniCare.
China Life Insurance
China Life Insurance Company Limited (China Life) is a People's Republic of China-based life insurance company. The products and services include individual life insurance, group life insurance, accident and health insurance. The Company operates in four business segments: individual life insurance business, group life insurance business, short-term insurance business, and corporate and other business.
Ping An Insurance (Group) Co. of China Ltd.
Ping An Insurance is the first integrated financial services conglomerate in China that blends its core insurance operations into services including securities brokerage, trust and investment, commercial banking, asset management and corporate pension business to create a highly efficient and diversified business profile. The group was established in 1988 and headquartered in Shenzhen, Guangdong Province, China.