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Principal May Remain Largely Intact: KBW Analyst

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What You Need to Know

  • American Equity still is focusing on non-variable indexed annuities.
  • Lincoln Financial prefers selling variable indexed annuities right now.
  • Primerica executives think COVID-19 could provide long-lasting support for life insurance sales.

Principal Financial Group Inc. may come out of its strategic review with less life and annuity business on its books but with its current product strategy largely intact.

Ryan Krueger, a securities analyst at Keefe, Bruyette & Woods (KBW), talked about that possibility in a recent life and annuity market commentary. KBW is part of Stifel Financial Corp.

Krueger based the commentary on what he saw during an Association of Insurance and Financial Analysts virtual conference.

Principal  has faced demands from activist investors for it to consider realigning its operations.

“Our sense is that [Principal] likes its current mix of businesses and believes they are complementary and strategically important, but is open to some changes that make sense long term,” Krueger writes.

One issue is that Principal benefits from managing the general account investments for the insurance operations, he says.

Another issue is that the company’s fixed deferred annuity block, single-premium immediate annuity block and variable annuity block have lower benefits guarantee levels than many other blocks that have been sold lately, Krueger says.

The most likely outcome is that Principal will free up capital by reinsuring some of its annuity business and individual life business, Krueger says.

Krueger suggests, elsewhere in the commentary, that:

  • American Equity Investment Life Holding Company sold many multi-year guaranteed annuities in the fourth quarter because of one-time asset allocation considerations, but that the company’s focus continues to be on non-variable indexed annuities.
  • Lincoln Financial Group isn’t interested in writing much fixed annuity business right now but does want to sell buffer annuities, or indexed annuities filed as variable annuities. The issuer of a buffer annuity can limit how much protection against loss of principal it provides.
  • Although the market for life and annuity deals is strong, fewer European buyers are out shopping. “Some companies are looking to double down where they have a competitive advantage, but activity activities is more targeted,” Krueger says.

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