The U.S. Department of Labor rule affected sales of life and annuity products during the first quarter, according to new research released by rating services company A.M. Best.
Sales of variable annuities dropped 18 percent during the quarter and saw $5.6 billion net transfer out of separate accounts.
Individual annuities continue to make up the majority of premiums for the industry, representing 33 percent of total direct premiums during the first quarter, up 10 percent from the same period last year. Overall industry premiums declined to $144.7 billion from $167.5 billion in the preceding quarter. Those results were generally in line with typical seasonal trends seen in first quarters of previous years, A.M. Best said.
Ordinary and group life contributed 27.1 percent of direct premiums written as of the first quarter. While growth for ordinary and group life sales has been slower than for annuities, it is expected to remain a key driver of long-term in-force profit for the industry, said A.M. Best.
The industry reported a significant decline in statutory earnings and modest realized capital losses that affected net income during the first quarter, despite an overall increase in revenue, the report said. Net income dropped to $3.7 billion during the first quarter, from $13.7 billion during the first quarter of 2015.
A.M. Best said several general market conditions, including the Labor Department rule, negatively affected the industry as a whole, but five companies accounted for about $4 billion in pretax operating losses related to one-time reinsurance transactions, reverse adjustments and derivative movements. Other factors that put downward pressure on operating performance included macroeconomic volatility and heightened mortality that has affected life profitability. The company said it is not yet clear if recent mortality results are a long-term trend or a short-term anomaly.
Industry capitalization remains favorable and is showing modest increases in total capital, the report said.
Changes in the industry’s total capital remain positive in the first quarter, but are constrained by lackluster operating results, said A.M. Best. The lack of capital growth can be partially attributed to capital deployment, acquisition activity, share repurchases and dividends as companies look to improve operating returns on equity. A.M. Best said it views the industry as currently having generally adequate risk-adjusted capitalization, which is supported by the continued overall profitability.
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