Beacon CEO: Companies Continue to Limit US Sales of Fixed Annuities in First Quarter on Low Rates
June 17, 2013 by Fran Matso Lysiak
EVANSTON, Ill. – As companies continue to limit sales due to low interest rates, total first-quarter U.S. sales of fixed annuities, including indexed, declined to $15 billion, down 11.7% from the same period a year ago, according to Beacon Research.
“Most carriers are emphasizing profitability over sales volume,” Jeremy Alexander, chief executive officer of Beacon, told Best’s News Service. He noted that 71% of the writers in its study had lower sales than a year ago. Investment spreads in the opening quarter of 2013, however, were “robust,” partly due to continued reductions in credited and other rates, he said.
2012 represented the fourth-straight year of annual sales decline for these retirement-income products. Given the expectation of continued low rates for the foreseeable future, A.M. Best Co. “expects 2013 to offer a second round of challenges for traditional fixed-annuity products,” Andrew Edelsberg, vice president at A.M. Best, said earlier this year (Best’s News Service, April 17, 2013).
Companies don’t want to buy any more investments than necessary, such as to replace maturing bonds, at today’s low rates because they “don’t want to be stuck with them when rates rise,” Alexander said. “Low rates are already forcing them to reserve more against their obligations. Why add even more reserves to back the new business?” Those companies based outside the United States may have to face even greater reserve requirements under Solvency II, Alexander said. Solvency II capital considerations are pressuring foreign companies with U.S. annuity operations, Edelsberg said, noting this was one of the driving factors behind the announced sale of Aviva’s U.S. annuity business (Best’s News Service, April 17, 2013). In December, Aviva plc agreed to sell Aviva USA Corp. to the Bermuda-based Athene Holding Ltd. for $1.8 billion (Best’s News Service, Dec. 21, 2012).
Again capturing first place in overall sales was Allianz Life Insurance Company of North America, a unit of Germany’s Allianz SE, with sales of $1.16 billion, according to Beacon. Moving to second place was Security Benefit Life Insurance, whose parent is private equity firm Guggenheim, with sales of $1.1 billion. Remaining in third place was New York Life, with sales of $1.07 billion. American Equity Investment Life, a unit of American Equity Investment Life Holding Co. (NYSE: AEL), with sales of nearly $929.9 million, moved up a notch to fourth place. Rejoining the top five was Jackson National Life, a unit of the U.K.-based Prudential plc, with sales of $743.7 million, according to Beacon.
Allianz, Security Benefit, American Equity and Jackson National primarily sell indexed annuities. Indexed “have held their own and have shown positive sales momentum,” Edelsberg said earlier this year.
With indexed annuities, the insurer invests most of the customer’s principal in bonds to ensure the policy will generate a small annual return but uses a small portion of the premium to buy options in a stock market index, usually the S&P 500. Options that are exercised can result in additional interest credited to a policy, potentially more than an investor might achieve through other fixed-income investments.
Meanwhile, deferred income annuities are an emerging product but a small slice of the market. However, they were a “bright spot” during the first quarter, according to Alexander. Sales rose for the fifth straight quarter and were nearly 150% higher than a year ago. A deferred-income annuity, the same as longevity insurance, occupies a middle ground between fixed-deferred and immediate annuities (Best’s News Service, Sept. 10, 2012). Several large mutual life insurers are among the major sellers, including New York Life (Best’s News Service, Dec. 13, 2012).
Allianz Life Insurance Company of North America currently has a Best Financial Strength Rating of A (Excellent).
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com) BN-NJ-06-14-2013 1704 ET #
