Top executives at some big U.S. annuity issuers say they’re happy with how the annuity units have been doing but have noticed that interest rates have fallen.
The executives have been talking about the return of falling rates over the past week, in conference calls with securities analysts.
Typical “publicly traded” insurers — the kinds with shares of stock that trade on the New York Stock Exchange or Nasdaq — hold analyst calls every three months, to go over their earnings and discuss what the future may hold.
New York Life Insurance Company, Pacific Life, Thrivent and many other big annuity issuers are missing from the list of insurers that hold earnings calls. They are not public companies, and they do not have to court securities analysts.
But the views of the executives at the companies that do hold the calls may give outsiders a glimpse of what executives throughout the industry are thinking. Agents, brokers and others can listen to the calls by going to the events area in a publicly traded insurer’s investor relations website section.
Here are five things executives from annuity issuers have been saying at the most recent wave of calls.
1. “Discipline” is hot.
At least five top executives — Daniel Pitcher, the chief executive officer of FBL Financial Group Inc.; Dennis Glass, the CEO of Lincoln Financial; Craig Lindner, the co-CEO of American Financial Group Inc.; and two executives from Prudential Financial Inc. — used the word “discipline” or “discplined” to refer to how they’re approaching their annuity operations now.
“We continue to remain focused on disciplined pricing to help us achieve our targeted returns,” Lindner said.
At FBL, Pitcher used the word “discipline” several times.
“We continue to maintain our financial discipline as we determine appropriate crediting rates in this low interest rate environment,” Pitcher said.
“We’re being very disciplined in our pricing of product and in our return on new sales,” said Andy Sullivan, the head of Prudential’s U.S. business.
2. Letting cash flow out of annuities is fine.
Eric Steigerwalt, the Brighthouse CEO, told analysts his company posted $1.2 billion in total annuity net outflows in the fourth quarter of 2019. That was down from the outflow total for the fourth quarter of 2018, but up from the total for the third quarter of 2019.
“As we’ve said previously, we expect to see a continued shift in our business mix profile over time, as we gain more cash-flow generating and less capital-intensive new business, coupled with the runoff of less profitable business,” Steigerwalt said.
Robert Falzon, Prudential’s vice chairman, said Prudential expects retirement, group insurance, and the newly acquired Assurance IQ business to “offset the impact from low interest rates and net outflows in our individual annuity business as we maintain pricing discipline.”
At Lincoln, “to the extent sales or net flows decline in the short run because of our disciplined pricing actions, we expect to redirect capital to additional share buybacks,” Glass said.
3. Increased competition may have mixed effects.
At American Financial, Lindner said, “There are some new entrants into the indexed annuity business.”
Pitcher, FBL’s CEO, said, “There are some competitors out there that are offering more attractive rates.”
Myles Lambert, the chief distribution and marketing officer at Brighthouse, said Brighthouse likes the competitive environment.
“We think it’s a good thing for our advisors and consumers,” Lambert said. “It further validates the product category.”
Lindner said the level of competition is similar to what American Financial has typically seen.
“There are always a couple of companies that are, we think, pricing too aggressively,” Lindner said.
4. Finding attractive investments is difficult.
Lindner sees American Financial sees “lack of opportunities on the investment side.”
“Given the current interest rate environment and frankly very tight spreads and lack of opportunities on the investment side currently, we’re a little more cautious with our guidance on premium growth,” Lindner said.
5. Analyzing how an annuity business is really doing is tricky.
Randal Freitag, the chief financial officer at Lincoln Financial, said its hard for outsiders to know how an annuity block is doing by looking at indicators other than actual earnings.
In recent years, he said, the spread between what an issuer pays the annuity holders and what the issuer earns on its own investments may have shrunk, but that narrowing may be due partly to the age of the annuities, partly to technical factors, and partly to the fact that commissions are lower than they used to be.
— Read Prudential Aims to Cut Stock-Related Annuity Risk: Earnings, on ThinkAdvisor.