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Great American's Parent Talks About Annuity Sales: Earnings

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Executives at American Financial Group — the parent of Great American Life Insurance Company — say they’re pleased with how the company’s annuity business performed in the third quarter.

Core operating earnings at the annuity unit were higher in the the latest quarter than they were in the year-earlier quarter, in spite of the effects of the COVID-19 pandemic, according to Craig Lindner, American Financial Group’s co-chief executive officer.

(Related: Global Atlantic Reinsures $5.7 Billion in Great American Annuities)

The annuity unit’s strong core operating earnings “demonstrate the strong fundamentals of our business,” Lindner said Wednesday, in a comment included in the company’s earnings announcement for the third quarter, which ended Sept. 30.

Both gross annuity premiums and new annuity sales were lower in the latest quarter than in the year-earlier quarter, but annuity sales were 25% higher in the third quarter than in the second quarter, Lindner said.

Annuity sales through financial institutions in September were higher than annuity sales through financial institutions in September 2019, Lindner said.

The annuity unit is holding on to a higher percentage of its customers than in the past, and the increase in persistency has helped the annuity unit increase average assets and reserves by about 5% to 7% this year, Lindner said.

American Financial Group (NYSE:AFG

American Financial Group is reporting $164 million in net income for the third quarter on $2.1 billion in revenue, up from $143 million in net income on $2.1 billion in revenue for the third quarter of 2018.

The company gets about two-thirds of its gross written premiums from selling property and casualty insurance.

The company’s annuity unit is reporting $121 million in pre-tax core operating income on $453 million in revenue, compared with $100 million in pre-tax core operating income on $452 million in revenue for the year-earlier quarter.

Here’s what happened to premiums at the annuity unit, which American Financial Group calls its annuity segment, between the third quarter of 2019 and the latest quarter.

  • Total Gross Annuity Premiums: $871 million (down from $1.2 billion)
  • Gross Retail Annuity Premiums: $151 million (down from $228 million)
  • Gross Financial Institution Annuity Premiums: $473 million (down from $627 million)

The annuity unit is reporting a net, after-tax loss of $34 million for the third quarter, mainly because of a $36 million charge related to the “unlocking” of, or changes in, the actuarial assumptions used to run the annuity business.

The main driver of the $36 million unlocking charge was an American Financial Group move to cut its expectation that the 10-year U.S. Treasury rate will increase to 2.75% within the next decade, from less than 1% today. The company had been assuming that the 10-year Treasury rate would increase to 3.5% within a decade.

(Related: Consultant Sees Too Much Optimism in Life Insurers’ Prices)

Ameriprise Financial (NYSE:AMP)

Ameriprise is reporting a $140 million net loss for the third quarter on $3 billion in revenue, compared with $543 million in net income on $3.3 billion in revenue for the third quarter of 2019.

Adjusted operating earnings, which exclude the effects of “mark-to-market” type rules, fell to $184 million, from $554 million.

The retirement and protection unit, which sells annuities, life insurance and related products, is reporting an $89 million pre-tax adjusted operating loss on $781 million in net revenue, compared with $165 million in operating earnings on $788 million in net revenue for the year-earlier quarter.

The unit’s results include a $295 million charge related to changes in product assumptions, compared with a $16 million assumption unlocking charge for the third quarter of 2019. Most of the unlocking charge was the result of changes in interest rate assumptions, Ameriprise says.

Here’s what happened to cash sales of three types of protection products between the third quarter of 2019 and the latest quarter:

  • Variable Universal Life and Universal Life: $49 million (down from $71 million)
  • Term and Whole Life: $2 million (flat)
  • Disability Insurance: $1 million (flat)

Sales of annuities increased 2%, to $1.1 billion.

Ameriprise is encouraging advisors to sell annuities without living benefits guarantees. Sales of annuities without living benefits guarantees accounted for 56% of sales in the latest quarter, up from 25% in the third quarter of 2019.

“This sales trend is expected to continue over time and meaningfully shift the mix of the business to lower-risk products that do not have living benefit guarantees,” Ameriprise says.

Sales of accumulation variable universal life products increased 58%, and sales of indexed universal life products fell 68%.

The shifts in life product sales “were as expected, given pricing changes made to reflect low interest rates,” Ameriprise says.

Anthem (NYSE:ANTM)

Anthem is reporting $222 million in net income for the third quarter on $31 billion in revenue, compared with $1.2 billion in net income on $26 billion in revenue for the third quarter of 2019.

The Indianapolis-based company ended the quarter providing or administering health coverage for 43 million people, up from 41 million people a year earlier.

Here’s what happened to the number of people covered by specific types of Anthem health coverage products between the third quarter of 2019 and the latest quarter:

  • Individual Commercial: 701,000 (down from 711,000)
  • Medicare Advantage: 1.4 million (up from 1.2 million)
  • Medicare Supplement: 933,000 (up from 893,000)
  • Self-Funded Employer Plans: 25.6 million (up from 25.4 million)
  • Fully Insured Employer Plans: 17 million (up from 16 million)
  • Dental: 6.1 million (up from 5.9 million)
  • Vision: 7.5 million (up from 7.2 million)

Anthem included a section near the top of its latest earnings release that listed the steps the company has taken to respond to the COVID-19 pandemic.

Those steps included providing up to 80 additional hours of paid leave for workers, paying internet service costs for hourly workers, waiving all cost-sharing for COVID-19 testing and treatment through the end of the year, and providing financial assistance for providers.

Another big insurer, Centene, reported Tuesday that it had about $1.5 billion in COVID-19 care costs in the third quarter and $29 billion in revenue, meaning that COVID-19 care costs amounted to about 5% of its revenue. Centene executives said that a combination of a decrease in use of ordinary care in the third quarter and COVID-19 care costs had left that ratio of medical care spending to revenue slightly lower than it was in the third quarter of 2019.

Early in the second quarter, Anthem enrollees’ use of care dropped to about 60% of the usual levels, because of COVID-19-related lockdown rules and hospitals’ efforts to make room for patients with COVID-19.

Anthem executives did not give a COVID-19 care cost figure for the third quarter in the earnings release or during a conference call they held Wednesday to go over the results with securities analysts.

They did say at one point that use of care returned to about 95% of the baseline level in the third quarter, and that they expect the overall ratio of medical claims to revenue to be about 2 percentage points higher than the baseline level for the rest of the second half of the year, due to a combination of COVID-19 care costs and some pent-up demand for ordinary care.

Gail Boudreaux, Anthem’s CEO, said the company’s Medicaid plan “experience in the third quarter reflects a considerable increase in COVID-related costs.”

John Gallina, Anthem’s chief financial officer, said that, in the third quarter, without COVID-19, overall company health claims would have been below baseline levels in the third quarter.

“When you add COVID cost back in, we are exiting the third quarter at greater than baseline,” Gallina said. “We started the third quarter with a combination of both underlying procedures and COVID cost being below baseline, and we ended the quarter with the combination being above baseline. We fully expect that the fourth quarter would be above baseline for the entire quarter, given the recent surge in COVID, as well as all the other trends that we are seeing.”

Gallina said the medical loss ratio for the fourth quarter could be 3 percentage points to 3.5 percentage points above the baseline level.

— Read Q3 Life, Health and Annuity Earnings Season Calendaron ThinkAdvisor.

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