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Security Benefit's President Likes Selling Annuities

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What You Need to Know

  • He says one key to selling annuities now is focused distribution.
  • Another is a strong investment portfolio.
  • A reason for optimism: RIAs seem more interested.

Some days, it looks as if low interest rates forever might have killed the U.S. individual annuity.

Many executives of publicly traded life insurers have promised securities analysts that their companies have taken a “disciplined” approach to pricing, slashed living benefits guarantees, suspended sales of the products facing the most pressure, and generally done everything possible to hide themselves in caves.

Doug Wolff, president of Security Benefit Life, says his company is taking a different approach: It’s out there selling more annuities.

“We’re feeling really good about our place in the market,” Wolff said in an interview. “We had a really good 2020. And we think it’s going to be a good 2021.”

U.S. individual annuity issuer survey data from the Secure Retirement Institute show that Security Benefit increased sales of traditional fixed-rate annuities to $1.3 billion in 2020, from $1.1 billion in 2019, despite the impact of the COVID-19 pandemic.

Security Benefit climbed to 10th place in the rankings for sales of traditional fixed products, from 14th, as overall U.S. sales of those products fell 21%, to $52 billion.

The company’s sales of non-variable indexed annuities increased to $2.9 billion, from $1.4 billion. Its sales rank for that product improved to eighth, from 16th, as overall U.S. sales for those products dropped 24%, to less than $56 billion.

How did Security Benefit increase annuity sales in such a tough year?

“We continue to put out competitive products,” Wolff said.

Birth in a Drugstore

Back in 1891, 11 men started the Knights and Ladies of Security — the company that eventually became Security Benefit Life — as a fraternal insurer, in the back room of a drugstore in East Topeka, Kansas.

The company shifted to a mutual legal reserve life insurance company charter in 1950. An investor group led by Guggenheim Partners bought the company in 2010.

Then, in 2017, Eldridge Industries LLC, an investment company in Greenwich, Connecticut, acquired Security Benefit Life from Guggenheim. Eldridge also has a big stake in DPL Financial Partners, a company that distributes commission-free annuities through a platform aimed at RIAs.

Security Benefit has about $46 billion in assets: $31 billion in general account assets, $5.9 billion in separate accounts and $5.1 billion in mutual fund custodial accounts.

The firm’s main life insurance company reported $308 million in statutory net income for the first three quarters of 2020 on $5 billion in revenue. This is up from $170 million in net income on $3.7 billion in revenue for the comparable period in 2019, according to the company’s statutory quarterly statement.

Leadership Views

Wolff spent eight years as a consultant at Ernst & Young, then six years at Allstate Financial as an actuary. He joined Security Benefit as vice president of product development in December 2001, and he became the company’s president in 2011.

He is a fellow of the Society of Actuaries and a Chartered Financial Analyst and holds a bachelor’s degree from the University of Illinois Urbana-Champaign.

He explains that Security Benefit is doing well partly because its distribution strategy has buffered it from some of the forces hurting other annuity issuers’ sales.

The company relies mainly on a relatively small number of close relationships with regional banks, independent marketing organizations, independent broker-dealers and DPL, not a large number of distributor relationships, Wolff said.

In March and April 2020, Security Benefit invested in structured securities and other assets with an approach based on the assumption that the steep pandemic-related downturn would be temporary, and that assumption turned out to be correct, Wolff said.

Because Security Benefit kept investing at a time of wide spreads between what Security Benefit could earn on its own investments and what the company was promising customers, the company’s investment portfolio has performed well, Wolff said.

Strong investment returns helped Security Benefit respond to falling interest rates in an orderly way, without making the sudden crediting rate cuts that some other companies did, Wolff said.

Most life insurers focus heavily on investments in corporate bonds, mortgages and mortgage-backed securities.

Security Benefit has more money invested in other types of assets, such as collateralized loan obligations, and that has also helped keep performance steady, Wolff said.

Annuity Trends

One type of Security Benefit annuity that’s performed well is a fixed annuity contract that offers a one-year rate guarantee. In some ways, the contract is like a one-year multi-year guaranteed annuity, Wolff said.

The company is now looking at offering a registered index-linked annuity, or contract that provides a defined level of account value protection for the annuity holder, rather than a flat promise to protect account value.

Wolff said he continues to be optimistic about Security Benefit’s ability to sell commission-free annuities through fee-only RIAs. He noted that DPL has built up a good menu of fee-only contracts, and interest continues to grow.

“We think that’s a really green field,” Wolff said.

Now that bond yields are so low and bond fund returns are more volatile, RIAs are more interested in using annuities as an alternative to other fixed-income investments, he said.

Another trend Wolff sees is a move away from reliance on living benefits and toward products that maximize the holder’s ability to accumulate assets.

Wolff said he has not yet seen the SECURE Act have a big effect on sales. But if Congress pushes the required minimum distribution age far past the current age of 72, that could have a bigger effect, he said.

Doug Wolff (Photo: Security Benefit)

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