What a Big Annuity Issuer Sees Out There Now
April 24, 2018 by Allison Bell
Top executives at Ameriprise Financial Inc. are happy with how the company did in the first quarter, and their happiness is casting a flattering light on how they see the company’s life insurance and annuity operations.
Jim Cracchiolo, the Minneapolis-based company’s chairman and chief executive officer, said today that the company just wants to see the life and annuity operations serving clients and advisors’ needs well, along with other, related operations, in a holistic way, not necessarily showing big gains in sales and assets in every quarter.
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“We have good client flows,” Cracchiolo said, “We’re feeling very comfortable about that book of business.”
Cracchiolo and Walter Berman, the company’s chief financial officer, talked about the insurance and annuity operations today during a conference call with securities analysts. The company became the first major U.S. life and annuity issuer to post its first-quarter earnings when it released its results late Monday.
Analysts used the call to try to get an idea of how the life and annuity market as a whole might be doing.
At press time, Ameriprise was preparing to post a recording of the call here.
Ameriprise previously was American Express Financial Advisors. American Express turned Ameriprise into a separate company through a spin-off in 2005. It has large asset management and wealth management operations as well as life insurance, retirement non-medical health and property-casualty insurance operations.
The company is reporting $594 million in net income for the first quarter on $3.2 billion in revenue, up from $403 million in net income on $2.9 billion in revenue for the first quarter of 2017, according to a financial supplement.
The annuity unit is reporting $132 million in pretax adjusted operating earnings on $613 million for the latest quarter in revenue, compared with $139 million in pretax adjusted operating earnings on $608 million in revenue for the year-earlier quarter.
Clients pulled $1.2 billion more cash out of the annuities than they put in, but total ending balances increased 3%, to $79 billion, because of the effects of stock market gains on asset value.
Berman emphasized in a slidedeck that Ameriprise has managed to keep its annuity operations doing well while imposing “strong management of tail risk” and holding exposure to living benefit and death benefit guarantees to a low level, when compared with the value of the guarantees offered by other annuity issuers.
Earnings on life and health products fell 3%, to $65 million, but sales of universal life and variable universal life increased to $71 million, from $65 million in the first quarter of 2017.
Here are four things Cracchiolo and Berman said about the first-quarter results during the call.
1. Compliance environment
President Donald Trump has been in office for more than a year. The U.S. Department of Labor (DOL) has pulled back on enforcing fiduciary rule implementation guidelines. The U.S. Securities and Exchange Commission has posted a draft of a more flexible version of the fiduciary rule. A court has blocked DOL enforcement of its fiduciary rule guidelines, and raised the possibility that the Trump administration could let the rule die by refraining from filing an appeal.
Cracchiolo said the shift has helped.
Advisors “are focused, and back to work,” Cracchiolo said.
A year ago, Cracchiolo said, Ameriprise was focused on helping advisors comply with the new regulations.
This year, “we’re investing into the core of the business,” he said. “We’re simplifying and strengthening our sales processes.”
2. Interest rates
Cracchiolo said that the increase could lead to clients taking cash out of some Ameriprise products and putting it into others, but that, overall, rising rates should be good for products such as annuities.
Cracchiolo said it’s hard to tell how much of the recent improvement in annuity sales is due to the new regulatory environment and how much is due to higher rates.
2. Long-term care insurance
Analysts asked Ameriprise executives several questions about its closed block of long-term care insurance (LTCI) business, such as what might happen if the company reinsuring part of the block suffered a ratings downgrade.
Ameriprise shows in its financial supplement that the unit produced $2 million in pretax adjusted operating earnings for the latest quarter on $66 million in adjusted operating revenue, compared with $1 million in pretax operating earnings on $66 million in adjusted operating revenue for the year-earlier quarter.
Berman said that the unit is carefully managed and has had modest increases in reserves, but no large increases. He said he is confident that Ameriprise will experience no increases in LTCI reserves that would affect the company’s shareholders.
“I think we’ve seen more interest lately” from buyers that might like to acquire the LTCI block, Berman said.
Ameriprise should be in a good position to sell the block, because the block is so strong, once rates on 10-year Treasuries rise over about 4.5%, Berman said.
4. Banking
In the 1990s and early 2000s, many insurers experimented with getting into banking.
Most of those experiments ended around 2009, after the Great Recession hit.
Ameriprise executives got analysts’ attention by suggesting that they might use an existing trust company charter to get back into banking.
Cracchiolo said Ameriprise would be offering services aimed at wealth management clients, not commercial banking services.
