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May 08, 2020 at 03:31 AM
Equitable Holdings Inc. is yet another life insurer talking about how it will adjust its products to help it sail into the low-interest-rate wind.
The New York-based life insurer reported Thursday that it’s letting cash flow out of its fixed-rate living benefits annuity block, while attracting cash to newer, less-capital-intensive products.
(Related: Publicly Traded Life and Annuity Issuers Prepare to Talk About COVID-19 With Investors)
About $935 million in cash moved out of the fixed-rate annuities, but $615 million into the annuities Equitable now wants to sell. The result was a net outflow of $320 million.
The product shift helped Equitable report $372 million in operating earnings for the first quarter on individual retirement products, on $1.5 billion in revenue, up from $370 million in operating earnings on $1 billion in revenue for the first quarter of 2019, in spite of low interest rates and stock market turmoil.
Individual retirement unit commission spending increased to $72 million, from $66 million.
Equitable said it is now assuming that it’s slashing its long-term interest rate assumption to 2.25%, from 3.45%.
Interest rates are critical to life insurers, because life insurers use large portfolios of investments to support their insurance and annuity obligations. State insurance regulations encourage life insurers to invest mainly in high-quality bonds and other fixed-income investments, to avoid the risks associated with investing in common stock.
In practice, U.S. life insurers tend to invest heavily in corporate bonds, mortgages and mortgage-backed securities.
Equitable (stock symbol: EQH) talked about the performance of its individual retirement unit in its earnings release for the first quarter and related documents.
Equitable as a whole is reporting $5.4 billion in net income for the quarter on $13 billion in revenue, up from a $775 million net loss on $1.7 billion in revenue for the first quarter of 2019.
Equitable uses derivatives to transfer the investment market fluctuation risk associated with writing annuities to other parties. The company often reports big swings in quarterly net income and revenue figures because it includes the effect of changes in the market value of the derivatives in its net results.
The company’s operating earnings, which exclude the effects of “mark to market” accounting, increased to $515 million in the latest quarter, from $509 million.
Spending on commissions and distribution-related payments increased to $338 million, from $281 million.
The company’s protection solutions unit, which sells life insurance, is reporting $38 million in operating earnings for the latest quarter on $859 million in revenue, compared with $49 million in operating earnings on $831 million in revenue for the year-earlier quarter.
Protection solutions unit commission spending increased to $40 million, from $38 million.
In other earnings news:
FBL Financial Group Inc., West Des Moines, Iowa (Stock symbol: FFG)
FBL is reporting a $2.6 million net loss for the first quarter on $135 million in revenue, compared with $35 million in net income on $204 million in revenue for the first quarter of 2019.
