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Life Health > Annuities > Fixed Annuities

Nationwide Financial Reports Higher Profits, Lower Fixed Annuity Sales

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NU Online News Service, July 28, 2003, 6:40 p.m. EDT – Executives at Nationwide Financial Services Inc., Columbus, Ohio, say the company did well during the second quarter but is cutting back on sales of fixed annuities.

The company is reporting $97 million in net income for the latest quarter on $975 million in revenue, up from $82 million in net income on $756 million in revenue for the second quarter of 2002.

Nationwide sells individual annuities, institutional investment services and life insurance.

The individual annuity unit generated $48 million in operating income on $354 million in operating revenue, compared with $54 million in operating income on $306 million in operating revenue for the second quarter of 2002.

Nationwide’s annuity accounts attracted $597 million more cash during the quarter than they lost, up 17% from the net flow for the comparable quarter in 2002.

Sales of variable annuities increased 11%, to $1.3 billion, but sales of fixed annuities fell 33%, to $467 million.

“Interest spread margins compressed during the quarter,” Nationwide says in a discussion of the annuity unit results. “The current interest rate environment has limited the ability to effectively adjust crediting rates due to the interest rate floors contained in annuity contracts.”

The difference between the rates Nationwide is paying on fixed annuities and fixed accounts within variable annuities and the rates it is earning on its own investments shrank to 1.55 percentage points, from 1.95 percentage points during the second quarter of 2002, Nationwide says.

Nationwide is trying to manage the shrinkage by reducing sales of fixed annuities and enforcing restrictions on customer allocations to the general account investment options within individual variable annuities, the company says.

Meanwhile, at the institutional unit, revenue and income were both up, and the interest spread margin increased to 2.05 percentage points, from 2.04 percentage points.

At the life insurance unit, the recently competed acquisition of Provident Mutual Life Insurance Company, Berwyn, Pa., helped increase income and revenue, but economic and legislative uncertainty caused sales of corporate-owned life insurance to fall 32%, Nationwide says.


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