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.
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.
Net results included a $12 million charge for credit losses on investments, calculated using the new Current Expected Credit Losses (CECL) accounting standard. The CECL standard requires a company that uses it to estimate how the value of credit losses on its bond holdings has changed and to include that change in its net results.
Adjusted operating income, which excludes the effects of mark-to-market accounting, fell to $20 million, from $26 million for the year-earlier quarter.
FBL’s annuity unit is reporting $12 million in pre-tax adjusted operating income on $55 million in revenue, compared with $16 million in pre-tax adjusted operating income on $53 million in revenue.
The annuity unit is reporting that commission spending fell to $421,000, from $514,000.
The number of direct annuity contracts provided fell to 50,948, from 52,519.
Here’s what happened to first-year payments into two types of annuities between the first quarter of 2019 and the latest quarter:
- Traditional fixed Annuities: $5.4 million (down from $23 million)
- Group annuities: $2.6 million (up from $1.8 million)
The West Des Moines, Iowa-based company’s life unit is reporting $10 million in pre-tax adjusted operating income on $107 million in revenue, which are about the same as the results the company reported for the first quarter of 2019.
At the life insurance unit, commission spending increased to $4.8 million, from $4.6 million.
The number of traditional life policies in force fell to 364,286, from 365,650.
The number of universal life policies in force increased to 73,508, from 70,494.
Here’s what happened to first-year premiums for some types of life products between the first quarter of 2019 and the latest quarter:
- Universal life: $8.1 million (up from $5.8 million)
- Whole life: $1.8 million (down from $2.6 million)
- Term life and other: $2.8 million (up from $2.6 million)
Voya Financial Inc., New York (Stock symbol: VOYA)
Voya is reporting a $78 million net loss for the first quarter on $1.7 billion in revenue, compared with $74 million in net income on $1.8 billion in revenue for the first quarter of 2019.
Net realized losses on investments increased to $233 million, from $12 million.
Manulife Financial Corp., Toronto (Stock symbol: TSX)
Manulife is reporting 1.3 billion in net income for the first quarter, in Canadian dollars, on 20 billion dollars in revenue, compared with 2.2 billion dollars in net income on 24 billion dollars revenue for the first quarter of 2019.
That’s the equivalent of $966 million in net income, in U.S. dollars, for the latest quarter, on $15 billion in revenue, compared with $1.6 billion in net income on $18 billion in revenue for the year-earlier quarter, based on an exchange rate of 1.341 Canadian dollars per U.S. dollar in the latest quarter, and 1.329 Canadian dollars per U.S. dollar for the year-earlier quarter.
The company’s U.S. operations are reporting $1.4 billion in net income for the latest quarter on $7.9 billion in revenue, up from $332 million in net income on $4.6 billion in revenue, thanks in part to gains in the estimated value of the derivatives the company uses to hedge against investment risk and other forms of risk.
— Read Earnings: Prudential, Genworth, CNO, RGA, Sun Life, on ThinkAdvisor.