Publicly traded annuity market players are continuing to fight the effects of low interest rates and uncertainty about federal annuity sales rules.
Financial problems at shopping centers could still hurt the companies’ investments in mortgages, mortgage-backed securities and real estate.
At this point, however, the players that have reported first-quarter earnings look solid. CNO Financial Group Inc. and Reinsurance Group of America Inc. increased net income. CNO even managed to increase first-year annualized premium revenue from new annuities sales.
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Here’s a look at the highlights from the latest annuity player earnings announcements, based on information from their earnings releases, earnings release supplements and conference calls with securities analysts. All of the companies have posted recordings of their quarterly earnings conference calls on the investor relations sections of their websites.
CNO, a Carmel, Indiana-based insurer, is reporting $62 million in net income for the first quarter on $1.1 billion in revenue, up from $46 million in net income on $960 million in revenue for the first quarter of 2016.
Annualized premiums from new products sales increased to $18 million, from $16 million, for Medicare supplement products; to $24.8 million, from $23.5 million, for supplemental health products other than Medicare supplemental insurance; and to $6.9 million, from $6.1 million, for long-term care insurance.
First-year collected premiums for annuities increased to $256 million, from $232 million, and total annuity account value increased to $8.3 billion, from $8 billion.
The “new money rate,” or average yield on newly invested assets, increased to 5.23% during the quarter, from 4.9% a year earlier.
Because rates have been so low for so long, however, the average earned yield fell to 5.42%, from 5.47.%.
Ed Bonach, CNO’s chief executive officer, hinted during the company’s earnings call that it might have made some kind of deal to reduce its exposure to stand-alone long-term care insurance. “There continues to be strong, viable interest,” Bonach said. “There are definitely are qualified players, higher-rated reinsurers and counterparties that have interest.” Bonach hinted he might have more to stay about an LTCI deal in June.
Gary Bhojwani, CNO’s president, said annuity sales are up partly because of the company is working to get more of its agents licensed to sell securities, and the agents’ average level of sales is increasing.
LPL, a San Diego-based broker, is reporting $48 million in net income for the latest quarter on $1 billion in revenue, compared with $50 million in net income on $1 billion in revenue for the first quarter of 2016.
Trailing commissions from in-force fixed annuities increased 133% year-over-year, to $4.8 million, and trailing commissions from in-force variable annuities rose 8%, to $116 million.
Commissions from new contract sales fell 36% for fixed annuities, to $32 million, and 21% for variable annuities, to $51 million.
Dan Arnold, LPL’s president, said the drop in variable annuity commission revenue is the result of a variable annuity commission pricing change the company announced last fall. The company eliminated its old 7% upfront commission structure Jan. 1.
The remaining variable annuity options have lower upfront commissions, with trailing commissions, and that should lead to an increase in variable annuity trailing commission revenue over time, Arnold said.