Fiduciary Rule Confusion Hangs Over S&P Conference Life Sessions

An S&P rating analyst predicted rates will stay low for years

For institutional money managers, the S&P Insurance Conference lunches are a chance to get insurers' attention. (Photo: Allison Bell/TA) For institutional money managers, the S&P Insurance Conference lunches are a chance to get insurers' attention. (Photo: Allison Bell/TA)

Policymakers need to clear up the regulatory confusion over U.S. annuity sales quickly, for the sake of the consumers who are trying to prepare for retirement, Eric Steigerwalt, president of Brighthouse Financial, said today.

Steigerwalt made that plea during a panel discussion in New York, at an insurance conference organized by S&P Global Ratings.

(Related: S&P Sees Republicans Sticking With Policymaking Process)

Insurers are major investors in bonds and other fixed income securities, and S&P is a major rater of both insurers and fixed income securities. S&P holds an insurance conference every year, to give industry players a chance to share information about the industry, and to promote use of its rating services. For institutional money managers, the conference luncheons represent a chance to market their services to insurers.

Brighthouse is a Charlotte, North Carolina-based unit of MetLife Inc. that runs MetLife's retail life and annuity operations. MetLife is trying to spin Brighthouse off as a separate company, in part because of federal regulators' move to designate the company as a systemically important financial institution under the Dodd-Frank Act. Now, the unit is facing the effects of the U.S. Department of Labor fiduciary rule on annuity sales, as well as worries about how SIFI oversight will work and the effects of prolonged low interest rates on insurers' fixed income investments.

The Federal Reserve Board may raise the benchmark rates it controls twice this year, three or four times in 2018, and a few more times in 2019, but, even if the Fed does that, rates could still end 2019 at a relatively low level, according to Deep Banerjee, an S&P Global Ratings analyst.

"Spread compression is not going away," Banerjee said.

The DOL developed the fiduciary rule and rule guidelines, including a Best Interest Contract Exemption, which requires sellers of retirement products to work in the best interests of retirement savers, in an effort to protect retirement savers from buying high-priced products from high-pressure sales representatives with hidden conflicts of interest.

In the real world, Steigerwalt said, all of the uncertainty may be working against the best interests of savers who want to insure their assets against market downturns and insure their ability to use some of their savings to generate a lifetime stream of income.

Steigerwalt said everyone has to work together to come up with rules that work.

We kind of have to figure this out for the country," he said. 

Steigerwalt also talked about soft annuity sales.

(Related: Q1 Annuity Sales Fell 18%: IRI)

"Nobody knows, obviously, whether we're at the bottom," Steigerwalt said.

Consumers do know they need the products to protect themselves against longevity risk, he said.

Eric Steigerwalt (Photo: Allison Bell/TA)

Eric Steigerwalt (Photo: Allison Bell/TA)

Eileen McDonnell, president of Penn Mutual Life Insurance Co., said annuity issuers and sellers are suffering from the mistaken idea that the sale of annuities is now lightly regulated, and that large numbers of advisors are working against the interests of their clients.

"Most advisors have been acting in the best interests of their clients without this regulation," McDonnell said.

Most insurers and advisors favor the idea of working in the best interest of the clients, she said. What insurers and advisors oppose is the idea of having to document compliance with a vague regulation, which is written in such a way that critics could come back years later and second-guess past savings allocation decisions, McDonnell said.

Jana Greer, president of the individual and group retirement unit at American International Group Inc., said the annuity market could do much better if rates would go up half a percentage point and the regulatory confusion could be cleared up.

Greer cited a LIMRA survey that implied that U.S. consumers ages 50 to 80 could spend an additional $375 billion on annuities if insurers could persuade them to convert just 10% of their investment assets into a lifetime income stream.

Also at the conference:

Tom Burns, chief distribution officer at Allianz Life Insurance Co. of North America, said he thinks one big opportunity for annuity issuers lies in persuading more registered representatives to sell annuities, possibly by helping registered reps see annuities as just another asset class to put in a portfolio. Today, he said, only about 15% of registered reps sell annuities.

Will Fuller, president of annuity solutions at Lincoln Financial Distributors, said annuity sales have been soft in the past few years partly because of low interest rates, and partly because of regulatory uncertainty. A third reason, however, is that annuity issuers were somewhat slow to respond to investment market trends, such as increased investor interest in exchange-traded funds, he said.

Greer said AIG has seen some issuers backed by private equity funds offer annuities with what AIG sees as excessively aggressive pricing.

--- Read 5 Ways an AXA U.S. Spinoff Could Affect You on ThinkAdvisor.

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