In 2013, we published our first historical dividend analysis for life. We were the first site to go beyond just a basic dividend data table because we knew that the typical table was not enough to make a meaningful observation about dividend data.
This year we are updating the analysis process to introduce more advanced and accurate reporting of the data, as well as some predictable methods to provide more meaningful observations about upcoming dividend announcements.
Lifetime dividend analysis method for 2020
We continue to take publicly reported full-year dividend interest rate data and put it through a series of calculations to make actionable statements about the activity of various life insurance companies. Previously, the analysis focused on average movement in the dividend interest rate over a 10-year period and the standard deviation for each company's dividend interest rate.
We lose the average movement in the dividend interest rate for the entire 10 period because I always felt that it was a weak calculation. It was simply the average change during the first observable year to the last observable year. A rough and okay measurement, but one that lacked any precision that allowed the ability to make further conclusions with data.
We replaced this average movement with the average year-over-year movement in the dividend rate (ie a linear regression or progression) in data. This more meaningful measurement of data allows us to make some predictions about what might happen to the dividend interest rate at a particular insurance company (more on that later).
The standard deviation analysis is the same. We use the same amount of data that is used to calculate the new average change compared to the year to also calculate the standard deviation in the dividend rate for a certain company.
What dividend interest rates tell us and what they do not Tell us
The dividend rate tells the input variable for the dividend calculation at a certain insurance company. This specific variable deals with the part of the dividend that consists of investment income generated by the life insurer. This data point is non-standard, so we can not compare the dividend rate of one life insurer with the dividend rate of another and make any meaningful observations.
In other words, we can not compare a dividend rate of 6.5% in life insurance company A to a dividend rate of 5.85% at insurance company B. While many unqualified agents incorrectly has done this and made statements such as "the dividend rate on company A is higher so it is better than insurance company B," the truth is that we do not know that this is completely true.
What we can meaningfully say is that if the dividend rate on insurance company A is 6.5% this year and then 6.1%% next year reduced the dividend rate at insurance company A. We can therefore use the dividend rate for a particular insurance company and observe its change compared to the previous year to get a relative sense of how this part of The dividend changed over time.
In addition, the dividend investment component of the dividend is that most entire life-threatening companies produce the greatest impact on a dividendable dividend – so after the dividend, the interest rate can turn out to be important. ]
Average – Annual Changes in Dividend Interest ] As I mentioned above, the new calculation for average movement in the dividend interest rate is one year compared to the year rather than a simple beginning of the time period to the end of the time period average. interest rate change. This tells us what the average change in the dividend rate was for each year over the past ten years.
The table ranks companies from the lowest average change compared to the year before to the highest. While the table does not indicate an average change in New York Life, there was an extremely small change that rounds to zero and goes out to three decimal places.
Interestingly, four of the companies, MetLife, Northwestern Mutual, Ohio National and Guardian, are all sorts of lumps together. MassMutual sits in the middle of itself. New York Life and Penn Mutual are gathering quite close with very little movement in the dividend rate over the past ten years.
It is important to note that these data report the average change as a percentage change. This is not the average decimal change in the dividend rate. In other words, this does not tell us that the average change in the Guardian has been 0.021 of the dividend rate, but rather the rate of change averaged 0.021 or 2.1% compared with the previous year.
Standard deviation in dividend Courses
The standard deviation analysis proves to be useful as a way of evaluating the total volatility in the dividend interest rate. Higher values show us more movement in the dividend interest rate during the ten-year period; lower prices show us less movement.
There is an interesting wrinkle in the numbers to mark here. Despite New York Life's lower average change in the dividend rate (coming in at virtually zero), Penn Mutual shows significantly less volatility in the dividend rate over the same time period. This means that the New York Life dividend moved a lot but ended up more or less at the same rate as at the end of the ten-year period.
Penn Mutual, on the other hand, moved very rarely but ended up to a new (lower) point at the end of the ten-year period.
Again, we see a grouping of companies by deviation with MassMutual, Ohio National and MetLife that all fall slightly close to each other within the 0.30 percent range while Northwestern Mutual and Guardian fall within the 0.40 range.
These data report the decimal change in the dividend interest rate. For example, the 0.1425 standard deviation in New York Life means that it varied by approximately 14 basis points in the dividend rate over the ten-year period. predictions of dividend movements in the future. These predictions are not refined models based on a range of data that we have access to. Instead, they give us a series of potential dividend changes that we can consider "normal" given the dividend activity of a particular company over the past ten years.
We calculate this by using the average change in the year's dividend interest rate and the standard deviation to arrive at a new minimum interest rate.
These data show us the lower limit to which each company can drop its dividend interest rates and be within an interval in which we consider a continuation of developments over the past ten years.
So, for example, if the Guardian announces this year that the dividend rate for 2021 will be 5.45%, it falls within the range (with 5.41% as the limit for that range) so that we do not immediately suspect anyone harshe r negative press the Guardian about its dividend rate. However, if the Guardian announced a new dividend rate of 5.35%, it would fall outside the range and we would suspect that the Guardian is facing increasing pressure on its dividend rate.
A word of caution regarding this information, especially related to New York Life and Penn Mutual. As the current economic conditions of insurers pose a challenge to a sustainable level of dividends, and as these two have performed well above average, a message from either company to an interest rate below these figures does not necessarily mean that none of the companies are in serious trouble. The fact that conditions deteriorated for any of them can be quite literal. Nevertheless, we prefer a message within this range; that's always good news.
Another interpretation of these data is the relative distance between these figures and the current dividend rate. The higher this figure, the more volatility the dividend rate has experienced over the past ten years. If we take Penn Mutual and the Guardian as examples of opposite ends of the data set.
If Penn Mutual announces an interest rate of more than four basis points below its current dividend rate, it will fall outside the scope of its trend over the past 10 years. The Guardian, on the other hand, can lower its dividend rate by 24 basis points and stay within the normal range of the latest 10-year trend.
The dividend rate is not the complete story
Every year we publish a new dividend analysis, We comment on the fact that dividends and dividend levels do not always tell the whole story because it is about reasons to buy a whole life insurance. That fact remains unchanged. Although this information is useful for some applications of life insurance decisions – especially among those seeking full life insurance primarily for their cash-building features for later use – it is not always the most critical factor.
In addition, if you own an entire life policy from a company that performs in the lower part of this analysis, it does not necessarily mean that you need to take immediate action for the policy. There are some reasons why it may not make sense, but I will leave that discussion for another day.