Interest rates may be low, and sales rule uncertainty may be hurting distributors, but executives at the annuity issuers seem, generally, to be satisfied with the profitability of their annuity units.
Executives have been talking about the performance of the annuity units during conference calls with securities analysts, while discussing earnings reports for the second quarter.
Here’s a look at some of the highlights, based on the companies’ earnings releases and conference call recordings. Most of the companies provide links to recordings of the calls in the investor relations sections of their corporate websites.
1. American Equity Investment Life Holding Company: Accumulation v. Guarantees
American Equity, a company based in West Des Moines, Iowa, is reporting $27 million in net income for the second quarter on $819 million in revenue, up from $15 million in net income on $550 million in revenue for the second quarter of 2016.
The company focuses on selling annuities. Total sales for all products fell to $1.2 billion for the quarter, from $2.1 billion for the year-earlier quarter.
Ronald Grensteiner, the company’s president, said during the company’s analyst call that, in part because of the uncertainty about the U.S. Department of Labor’s fiduciary rule, sales of products that offer clients income guarantees are facing more resistance.
Grensteiner noted that agents who are licensed to sell securities can choose between selling clients guarantee-based products or accumulation-based products.
“We believe securities licensed agents are allocating more client funds into the equity markets,” Grensteiner said.
American Equity is responding by making sure independent agents know its fixed annuities offer riders that can help clients accumulate more value, not just guarantee access to income, Grensteiner said.
2. American Financial Group Inc.: Crediting Rates
American Financial Group, a Cincinnati-based property-casualty insurer, is the parent of Great American, a company that sells fixed annuities and indexed annuities.
American Financial as a whole is reporting $145 million in net income for the second quarter on $1.6 billion in revenue, up from $63 million in net income on $1.6 billion in revenue for the second quarter of 106.
The annuity unit is reporting $85 million in operating earnings on $1.3 billion in revenue, up from $76 million in operating earnings on $1.1 billion in revenue.
Craig Lindner, the company’s co-chief executive officer, said during his company’s analyst call that the environment for annuities is “very competitive right now.”
“Obviously, interest rates have not moved up the way most people are expecting them to this year,” Lindner said.
Great American has cut crediting rates on new annuities, to reflect the lower interest rates, Lindner said.
“There are some companies out there that have not adjusted crediting rates,” Lindner said. “Unless they’re doing something that we’re not able to do on the investment side, it’s hard to see how they’re making their rate margins, frankly, on new business.”
Annuity sales were been down about 10%, industrywide, in the first half of the year, and Great American has heard that “July was somewhat soft also,” Lindner said.
3. FBL Financial Group Inc.: Life Sales
FBL, a company based in West Des Moines, Iowa, sells some life insurance as well as annuities.
The company is reporting $32 million in net income for the second quarter on $189 billion in revenue, compared with $24 million in net income on $181 billion in revenue for the second quarter of 2016.
First-year collected premiums fell to $26 million, from $38 million, for fixed-rate annuities, and to $76 million, from $97 million, for indexed annuities.
Total first-year sales of universal life insurance were strong. First-year UL premiums increased to $8.1 million, from $4 million for the year-earlier quarter.
Jim Brannen, FBL’s chief executive officer, said during the company’s call that the company’s new accelerated underwriting pilot program has been doing a good job of attracting middle-market life insurance customers.
“The increase in life sales is particularly important when annuity sales are under pressure due to low interest rates and increased regulation,” Brannen said.
Brannen talked also talked about wanting to recruit more agents.
The company had 1,828 exclusive agents and agency managers on June 30, and, on July 31, it had 95 active reserve agents who were working to become full-time FBL agents.
4. Genworth Financial Inc.: Long-Term Care Insurance
Genworth, which is based in Richmond, Virginia, is reporting $271 million in net income for the second quarter on $2.2 billion in revenue, up from $220 million in net income on $2.2 billion in revenue for the second quarter of 2016.
The company has large mortgage insurance operations as well as long-term care insurance and annuity operations.
The company has been facing serious challenges in its long-term care insurance block of business and is in the process of trying to sell itself to China Oceanwide, a company based in China.
The unit that issues fixed annuities is reporting just $1 million in net sales for the latest quarter, down from $9 million for the second quarter of 2016.
Life insurance sales fell to none, from $9 million.
At the company’s fixed annuities unit, revenue increased to $210 million for the quarter, from $189 million in the year-earlier quarter.
The unit generated $7 million in adjusted operating income for the quarter, up from a loss of $13 million for the year-earlier quarter.
Long-term care insurance sales fell to $3 million, from $6 million.
At the LTCI unit, revenue fell to $1 billion, from $1.1 billion. Adjusted operating income fell to $33 million, from $37 million.
5. Lincoln National Corp.: Commissions and Deals
Lincoln National, which is based in Radnor, Pennsylvania, and is better known as Lincoln Financial, is reporting $412 million in net income for the second quarter on $3.6 billion in revenue, compared with $325 million in net income on $3.3 billion in revenue for the second quarter of 2016.
Sales of variable annuities held steady at about $1.6 billion.
Sales of fixed annuities fell to $377 million, from $478 million.
Ordinary individual life sales increased to $188 million, from $173 million.
Sales of the MoneyGuard product, a life product that can help purchasers plan for long-term care expenses, increased to $80 million, from $51 million.
Lincoln Financial breaks out commission payment expenses separately. Commission spending increased to $576 million in the latest quarter, from $546 million in the year-earlier quarter.
Company executives also talk openly about their interest in making acquisitions.
Randy Freitag, the company’s chief financial officer, said Lincoln hopes to get more of its revenue from life insurance and benefits products, with some of that increase coming from “organic growth.”
When asked about the possibility of increasing life and benefits sales through “inorganic growth,” or acquisitions, Freitag said Lincoln could spend up to about $2 billion on the right deal.
6. MetLife Inc.: Pension Risk Transfers
Executives from MetLife, a New York-based company, held their second-quarter conference call as they were spinning Brighthouse Financial Inc. off as a separate company. Brighthouse Financial inherited MetLife’s individual life and annuity business.
The company as a whole is reporting $838 million in net income for the second quarter on $17 billion in revenue, compared with $12 billion in net income on $15 billion in revenue for the second quarter of 2016.
Overall annuity sales were down 8%, but sales of the Shield Level Selector indexed annuities increased 28%, to $570 million.
Although MetLife is now out of the individual annuity business, it’s still in the pension business, and it’s still accepting pension risk transfer business from sponsors and financial services companies that want to shed pension risk.
John Hele, MetLife’s chief financial officer, said the company thinks of the pension closeouts business as a good, growing business.
MetLife has an annual pension closeout budget, Hele said.
The Brighthouse Financial spin-off won’t affect the pension closeout budget, Hele said.
7. National Western Life Group Inc.: Compensation
National Western Life, an Austin, Texas-based company, is reporting $25 million in net income for the second quarter on $198 million in revenue, compared with $26 million in net income on $167 million in revenue for the second quarter of 2016.
Operating income fell to $21 million, from $24 million, partly because long-term incentive compensation increased by about $5 million, according to Ross Moody, the company’s president.
8. Prudential Financial Inc.: Likes Annuities
Prudential, which is based in Newark, New Jersey, is reporting $921 million in net income for the second quarter on $14 billion in revenue, up from $491 million in net income on $13 billion in revenue for the second quarter of 2016.
The individual annuity unit is reporting a $442 million net loss on $1.3 billion in revenue for the latest quarter, compared with $1.3 billion in net income on $1.1 billion in revenue for the year-earlier quarter, but operating income increased to $612 million, from $427 million.
John Strangfeld, Prudential’s chief executive officer, emphasized that the company still likes its annuity business.
The annuity unit took a non-economic investment-fluctuation hit, but “we reported very good earnings in our individual annuities business,” Strangfeld said during the company’s analyst call.
Account values reached a record high, and operating profit margins were exceptionally high, he said.
The company took actions to reduce variable annuity product guarantee exposure in 2016, and that’s helping results now, he said.
9. Voya Financial Inc.: Buying Out Some Guarantee Holders
Voya, which is based in New York, is reporting $219 million in net income for the second quarter on $2.6 billion in revenue, compared with $235 million in net income on $2.7 billion in revenue for the second quarter of 2016.
The annuities operation is reporting $66 million in operating earnings for the latest quarter on $298 million in revenue, compared with $73 million in operating earnings on $319 million in revenue for the year-earlier quarter.
Voya has been working to improve the profitability of its annuity business by offering cash to annuity holders willing to give up guaranteed minimum income benefits, or GMIBs.
Michael Smith, Voya’s chief financial officer, said during Voya’s analyst call that the company made one offer to about half of the holders of the benefits guarantees and got a 25% offer take-up rate.
The company is now sending a new offer to the entire GMIB block, Smith said.
Some annuity holders who have contracts with GMIB features will be getting an offer for the first time, and some for the second time, Smith said.
“One lesson we learned from the past offer was that we had only a 60-day window,” Smith said.
Agents had trouble telling all eligible consumers about the offer, he said.
This time, Voya is dealing with that challenge by using a longer offer window, Smith said.
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