Life Insurers See Improving Conditions in Second Quarter

With MetLife posting a $1.4 billion net loss on derivatives due to narrowing of its own credit spreads and Prudential Financial reporting a profit after posting three straight quarterly net losses, the second quarter saw the U.S. life insurance industry continue to struggle through difficult -- but improving -- market conditions.

Here's what executives said during conference calls:

'In the Money'

Steve Kandarian, chief investment officer, MetLife: Losses due to derivatives that do not qualify for hedge accounting were $2.8 billion. This was primarily attributable to a $1.5 billion pretax loss due to the improvement in MetLife's own credit spread and its impact on the valuation of certain insurance liabilities.

Bill Wheeler, chief financial officer, MetLife: If you look over the last six quarters, we have really had derivative gains, and another way to think about this in our cash balance ... the $21.3 billion this quarter, in that there is about $3 billion related to collateral, mainly on the settlement of derivative contracts. So we are still way in the money on a lot of our derivative positions.

Improving Markets

John Strangfeld, chairman, president and chief executive officer, Prudential Financial: Results obviously reflect improvements in financial markets, though in many ways more importantly indicate clear trends that we are improving our competitive position.

'Potential Taint'

Dennis Glass, president and CEO, Lincoln National: On the [Capital Purchase Program] issue, first, let me answer the question specifically as to any feedback that we've been getting from distribution partners or individual financial advisers about, let's call it, the potential taint of being included in the program. And we can say without qualification, the number of comments have been few and far between.

Liz Zlatkus, CFO, Hartford Financial: The CPP preferred stock and warrants will affect our results in several ways. First, the preferred stock dividends will reduce earnings available to our common shareholders in the earnings per share calculation by $170 million a year. In addition, earnings available to common shareholders will be reduced to reflect the accretion of the discount associated with the preferred stock.

Variable Annuities: Reducing Risk

Mark Grier, vice chairman, Prudential: All of the variable annuity living benefit features we offer today come packaged with an auto rebalancing feature where customer funds are reallocated to fixed income investments to support our guarantees in the event of market declines. Given the popularity of these features over the past several years driven by our highest daily benefits, nearly 60% of our account values with living benefits at June 30 are subject to auto rebalancing, reducing our risk profile and limiting our exposure to volatile costs in hedging.

U.S.-Focused

Ramani Ayer, chairman and CEO, Hartford Financial: The best way to deliver long-term value as an organization was to return to our historical strengths as a U.S.-focused insurance and financial services company.