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August 06, 2020 at 03:50 PM
Executives at Prudential Financial said the company is continuing to try to shed individual life and annuity benefits guarantee risk, by shifting toward selling more variable products.
Rob Falzon, the vice chairman of the Newark, New Jersey-based company, talked about the fixed-to-variable shift Wednesday, during a conference call Prudential held to go over its second-quarter earnings with securities analysts.
(Related: Life Insurers’ Insurer Talks About COVID-19 Claims: Earnings)
“We took aggressive pricing actions aligned with intention to significantly reduce sales of HDI, our legacy flagship [variable annuity] product, and launched FlexGuard, our buffered annuity product, which has been well received by the market,” Falzon said.
Low Interest Rates
Because of regulatory constraints and risk management concerns, life insurers depend heavily in high-grade corporate bonds to support life and annuity obligations.
The Federal Reserve Board pushed interest rates down sharply around 2009, in response to the 2007-2009 Great Recession.
After that, rates started to creep up.
In recent months, however, the Federal Reserve Board has pushed rates down, in an effort to nurse debtors along, and to buoy stock prices.
Many life insurers have reported that their interest rate spreads, or the gap between what they pay product holders and what they earn on their own investments, were much narrower in the latest quarter than in the year-earlier quarter.
Prudential’s Response
Falzon said during the analyst call that increasing the price of the HDI contracts, which offer rich guarantees, and emphasizing the sale of the new FlexGuard contracts, which offer more limited guarantees, supports Prudential’s shift to reducing risk levels.
Prudential is applying those same principles to other units, such as its individual life business, Falzon said.
