While losses related to variable annuity products continue to take their toll on life insurance companies, they also were largely responsible for the poor fourth quarter performance by Philadelphia-based health insurer Cigna Corp., which has major operations in Bloomfield.
Cigna reported a net loss of $209 million for the quarter, compared with net income of $263 million for the same time period in 2007. The results included $405 million in losses from the company’s variable-annuity and guaranteed-minimum death-benefits businesses.
So how did a health insurance company get mixed up with a risky life insurance product?
According to documents filed with the Securities and Exchange Commission, Cigna had business segments that reinsured variable annuities and guaranteed minimum death benefits issued by other insurance companies, meaning they absorbed some of the risks and rewards associated with the performance of those products.
About 80 percent of those reinsured variable annuities came from The Hartford Financial Services Group, according to Chris Curran, a spokesman for Cigna.
Cigna discontinued its reinsurance segments in 2000, but they continue to operate death-benefits products as an inactive business in run-off mode. The company isn’t taking on new variable annuity risks, but it remains responsible for the liabilities that still exist on its books.
“The results of our run-off reinsurance segment in the second half of the year, although manageable from a capital perspective, were adversely affected by the results in the equity markets,” H. Edward Hanway, Cigna’s chairman and CEO, said in a written statement.
Variable annuities are life insurance products that rely heavily on the performance of underlying equity investments. Under a typical annuity contract, an investor puts money into a mutual-fund-like portfolio with the promise of receiving guaranteed payments for life.
In many cases, guarantees promise a minimum repayment to the investor no matter how the stock market performs. In the market’s recent nosedive, many equity portfolios held by annuity customers underperformed the guarantees. The annuity commitment has dragged on Cigna’s earnings for several quarters.
And in its 2009 forecast, Cigna lowered its estimate for profit from operations to $3.95 to $4.25 per share from an earlier forecast of $4 to $4.30 per share.
That lowered forecast did beat the expectations of analysts, however, who project 2009 income of $3.87 per share.
Connecticut River Bank’s Record
Wethersfield-based Connecticut River Community Bank, which opened in November 2002, posted record operating earnings in 2008. For the year, the bank reported net income of $419,701, compared to a net loss of $7,254 for 2007.
For the fourth quarter, income was $88,770, compared to a net loss of $98,628 for the fourth quarter of 2007.
Outstanding loans at Connecticut River Bank increased to $133.1 million on Dec. 31, up from $115.1 million a year earlier.
Non-performing loans increased by $802,697 over the past year to about $1 million, or 0.78 percent of total loans. The bank increased its allowance for loan losses to a total of $2.1 million as of Dec. 31.
“We remain strong, growing and well capitalized,” said Bill Attridge, president and CEO of the bank.
New England Bancshares
New England Bancshares, the holding company for Enfield Federal Savings and Loan Association and Valley Bank, reported fourth quarter net income of $747,000, compared to net income of $395,000 in the same time 2007 period.
For the nine months that ended Dec. 31, however, the bank reported a net loss of $795,000, compared to a net income of $691,000 in the year-earlier period.
In January the bank announced plans to merge Enfield Federal Savings and Loan with Valley Bank and rename the combined bank “New England Bank.”
The merger is expected to reduce annual expenses at the banking company by $750,000.
The bank also announced its intention to acquire Apple Valley Bank & Trust Company of Cheshire, which will increase the bank’s assets from $541 million to about $624 million.
Greg Bordonaro is a Hartford Business Journal staff writer.
