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The Cash Flowing Out of Some Annuity Units Does Matter: Analysts

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Life insurers may be doing a good job of taking a disciplined approach toward guarantee risk, and shifting toward reliance on safer product structures — but, at some point, loss of annuity assets may hurt.

Securities analysts at Morgan Stanley point made that point in a recent comment on insurers’ second-quarter results.

The analysts see important positive trends, such as an easing of regulatory threats, and slow, steady increases in interest rates. Increases in rates help issuers generate more revenue from the bonds, mortgages and other investments that support their annuity products.

(Related: Higher Rates Needed for Today’s Economy: Fed’s Barkin)

The analysts also see negative trends, including uncertainty about long-term care insurance obligations and pressure from Tax Cuts and Jobs Act provisions.

Another concern the analysts see is consumers pulling more cash out of variable annuities than they put in.

The strong stock market has helped push up the total value of variable annuity assets, and  variable annuity unit earnings .

Variable annuity sales were somewhere around $8 billion, but outflows were around $12 billion,, according to an analyst chart.

Net outflows were around $4 billion, according to the analysts’ figures.

“We are generally seeing lackluster sales and escalated lapse activity weighing on the top-line growth,” the analysts write.

The analysts attribute the drop to lower product guarantees, insurers’  limited appetite for equity-sensitive products, and fiduciary rule uncertainty effects.

The recent  shift in the fiduciary rule efforts could help relieve some of the pressure on sales, the analysts say.

Why This Matters to Agents

Securities analysts write for investors, but they provide an independent layer of scrutiny of companies’ operations.

When securities analysts’ views affect how investors see life insurers, or reflect how investors already see life insurers, that be a clue as to how easily life insurers’ can get capital from investors to do things like make major acquisitions.

— Read New Accounting Rules to Put Life Insurers on GAAP Reporting Rollercoasteron ThinkAdvisor.

— Connect with ThinkAdvisor Life/Health on Facebook and Twitter.


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