American International Group Inc. is reporting that its life and retirement unit did well in the fourth quarter, but that the return of falling rates was hard on sales.
The financial services giant is reporting $869 million in net income for the fourth quarter of 2019 on $12 billion in revenue, compared with a $560 million net loss on $13 billion in revenue for the fourth quarter of 2018.
The company’s life and retirement unit is reporting $839 million in adjusted pretax income on $4 billion in revenue, up from $623 million in adjusted pretax income on $4.1 billion in revenue for the year-earlier quarter.
But Kevin Hogan, the head of AIG’s life and retirement unit, said during a conference call AIG held to go over its results with securities analysts that AIG expects individual fixed annuity sales to continue to be down for 2020, and for cash to flow out of group and individual retirement products.
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Here’s what AIG said happened to net flows of cash for several individual retirement products, in the United States, between the fourth quarter of 2018 and the latest quarter:
- Indexed annuities: A $1.1 billion inflow (down from a $1.2 billion inflow)
- Variable annuities: A $456 million outflow (compared with a $528 million outflow)
- Fixed annuities: A $658 million outflow (compared with $19 million inflow)
Brian Duperreault, AIG’s chief executive officer, said in a comment on the results included with the earnings release that the AIG life and retirement business “delivered solid results in the face of continued headwinds from low interest rates and tightening credit spreads.”
Hogan said conditions for annuity sales looked good in the first quarter.
“We deployed significant capital in individual retirement and produced robust new business volume at attractive margins,” Hogan said. “As rates and spreads declined over the remaining three quarters, we adjusted our pricing and reduced individual annuity sales levels, as our view of margins became less attractive.”
But group retirement premiums and deposits and international life sales have been strong, Hogan said.
American Equity Investment Life Holding Company (NYSE AEL)
American Equity Life is reporting $220 million in net income for the fourth quarter of 2019 on $1.1 billion in revenue, compared with $54 million in net income on negative $451 million in revenue for the fourth quarter of 2018.
The negative revenue figure for the fourth quarter of 2018 was caused by a change in the fair value of the derivatives the West Des Moines, Iowa-based company uses to hedge annuities against stock market ups and downs.
American Equity gets more than 80% of its ordinary revenue from investment income. Net investment income increased to $588 million, from $554 million.
Overall annuity sales fell to $921 million, from $1.1 billion.
John Matovina, the company’s chief executive officer, said in a comment about the results that the drop in gross annuity sales was due to competitive rate dynamics in the market.
In October, American Equity responded to lower yields on its own investments by cutting crediting rates and guaranteed income levels for holders of indexed annuities.
“The competition did not act in a similar manner, neither in terms of timing nor nature with regards to rates and guaranteed income,” Matovina said.
But investment yields started to look better in the fourth quarter, and American Equity increased caps and participation rates for holders of indexed annuities starting in mid-December. That meant the company would apply a bigger share of any investment index gains to the holders’ crediting rates.
The mid-December changes put American Equity in a better competitive position, but the company still has not increased guaranteed income levels, Matovina said.
“While in the near term this may be a sales head wind for us with respect to policies with lifetime income benefit riders, we expect competitors will ultimately adjust their guaranteed income pricing to recognize this factor,” Matovina said. “But the timing and size of any such adjustments is unclear at this time.”
CNO Financial Group Inc. (NYSE:CNO)
CNO is reporting $278 million in net income for the fourth quarter of 2019 on $1.1 billion in revenue, up from $28 million in net income on $778 million in revenue for the year-earlier quarter.
At one of the Carmel, Indiana-based company’s units, Bankers Life, first-year collected premiums for long-term care insurance (LTCI) increased to $5 million, from $4.3 million, and total collected LTCI premiums increased to $65 million from $64 million.
Bankers Life spending on commission expense and distribution fees increased to $18 million, from $13 million.