Analysts at Fitch Ratings published the following summary of the first-half 2015 financial results for 17 financial services companies:
Operating profitability relatively flat
During first-half 2015, pretax operating earnings increased 2% over the prior-year period for GAAP reporting companies in Fitch’s rating universe. Pretax operating income continued to benefit from higher fee income, which was offset by lower interest margins and unfavorable mortality. Operating profitability remained relatively flat with average operating ROE of 12.8% in first-half 2015 compared with 12.7% in the prior-year period.
Results vary by segment
Variable annuities, retirement plans and asset management segments continued to benefit from higher account values caused by strong equity markets and solid sales during first-half 2015.
Results in individual life and fixed annuities were adversely affected by unfavorable mortality and continued interest margin compression during the period. The group benefits business was aided by favorable claims experience but continues to face competitive pricing pressure.
Company results mixed
Operating results were almost evenly split between companies reporting better returns in first-half 2015 and those reporting worse returns during the period. Notable items affecting individual company results include a favorable impact from deferred acquisition cost unlocking and reserve releases at Prudential Financial, Inc. and more favorable claims experience in StanCorp Financial Group, Inc.’s primary products. Alternatively, Aflac Incorporated’s results were adversely affected by currency volatility while Protective Life Corporation’s results reflect accounting-related changes due to its acquisition by Dai-ichi Life Insurance Co., Ltd.
Declining investment yields
Investment yields declined in first-half 2015 due to low reinvestment rates and new money invested at lower market yields. Partially offsetting the low rates were prepayment fees and higher returns on Schedule BA assets. Credit impairments remain very low due to a continuous decline in corporate defaults, a trend that began in 2010.
However, interest margin compression on spread-based products remained modest in first-half 2015. Active management of crediting rates and hedging activity continue to mitigate the impact of low interest rates.
Derivative gains
The realized gains for Fitch’s rating universe nearly tripled during first-half 2015 to $2.4 billion from $813 million in the prior-year period. The increase was primarily driven by substantial hedging-related derivative gains from Prudential Financial, Inc.
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