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Low yields impact AIG’s life insurance business earnings

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Mar. 20 2015, Updated 5:04 p.m. ET

Operating income

Pre-tax operating income of AIG’s Consumer Life Insurance segment stood at $80 million in 4Q14, compared to $215 million in 4Q13. The lower earnings were due to lower investment income as well as a charge of $104 million because of changes in reserve estimates.

In the life insurance segment, AIG (AIG) faces competition from insurers like MetLife (MET), Prudential Financial (PRU), Principal Financial (PFG), and life insurers held by the Financial Select Sector SPDR ETF (XLF).

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Top line growth

As can be seen from the above chart, both premium and policy fees grew in 4Q14 when compared to the same quarter in the previous year. AIG’s life business in Japan, which contributed slightly less than 50% of the new business sales in 2014, saw a 7% growth in premiums in 4Q14, driving the overall premium growth of the segment.

New business sales

New business sales for life insurance products refer to the first-year premium for the product sold and does not include premiums for policy renewal.

AIG’s sales from new business in 2014 are well diversified, both in terms of products as well as region, as we can see in the above chart. Japan’s share of the new business sales was almost half the total sales of new business, while the US contributed the remaining half.

While whole life and health insurance products constituted the sales in Japan, universal and term life policies were main products in the US.

Acquisitions

AIG completed the acquisition of Ageas Protect Limited in 4Q14. Ageas Protect provides life protection products in the United Kingdom, adding to AIG’s existing product portfolio of protection products like accident, health, and travel insurance.

The company has also entered into an agreement with Laya Healthcare, which provides insurance products in the Irish private health market, and complements AIG’s product portfolio in Ireland.

Both these acquisitions will help AIG undertake further expansion in foreign markets, enabling AIG to diversify its life insurance operations. About 97% of life insurance premiums came from the Americas in 2014, as outlined in the first article in this series.

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