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Aegon Sees Strong Annuity Buyout Demand

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What You Need to Know

  • Aegon is buying some life insurance policies away from life settlement investors.
  • The company is using a reinsurance deal with Wilton Re to manage the mortality risk associated with big life policies.
  • The company has received approvals for a total of 76% of the $450 million in long-term care insurance premium increases that it has been seeking.

Executives at Aegon — the Dutch parent of Transamerica — say many holders of U.S. variable annuities with rich benefits guarantees would rather have a big cash payment.

The executives talked briefly about Transamerica’s U.S. variable annuity buyout program Wednesday, on a conference call the company held to go over earnings for the fourth quarter of 2021 with securities analysts.

Aegon has been focusing on reducing the level of both life insurance and annuity risk at its U.S. operations.

Like many other life insurers, Aegon has been trying to turn away from products that expose the company to a high level of risk related to fluctuations in interest rates and stock prices, in part because of new European and U.S. accounting rules that lead to those fluctuations causing big, immediate changes in net income and other indicators that investors watch.

Matt Rider, Aegon’s chief financial officer, said on the conference call that the company began offering lump-sum payments to holders of variable annuities with guaranteed minimum income benefit riders.

“At the end of the year, 16% of customers who received an offer had accepted it,” Rider said. “The program concluded at the end of January 2022, with a total of 18% of customers accepting the offer.”

Transamerica has also reduced the risk level of the variable annuity income guarantee riders still on its books, by expanding a hedging program to cover the interest rate and equity risks embedded in the guarantees of the entire variable annuity portfolio, Rider said.

He noted that Aegon already had a hedging program to reduce the level of risk associated with annuity guaranteed minimum withdrawal benefits.

Aegon streamed the conference call live on the web and has posted a recording on its website.

Life Insurance

Rider also talked about efforts to reduce the risk associated with big life insurance policies.

Rider said part of that effort involved buying back some life insurance policies from life settlement companies, or companies that buy the rights to collect life insurance policy death benefits from the insureds.

Aegon then arranged for an outside company, Wilton Re, to reinsure the policies that were bought back from the life settlement companies, and other high-benefit policies.

COVID-19

Rider said that, in addition to having concerns about the effects of ups and downs in interest rates and investment prices, Aegon also has concerns about the effects of the COVID-19 pandemic on U.S. life insurance claims.

Rider noted that “U.S. adverse mortality experience amounted to €83 million,” or about $95 million in U.S. currency.

The United States had reported about 900,000 pandemic-related deaths by the end of 2021.

Rider said Aegon believes COVID-19 mortality will continue to be high this year.

“I mean, we are expecting at this point in 2022 something like 300,000 U.S. population deaths related to COVID-19,” Rider said. “It’s quite a staggering number relative to where we are today.”

Long-Term Care Insurance

Transamerica has been a significant issuer of U.S. long-term care insurance.

The company had the same problems with inaccurate assumptions about policyholder behavior and investment earnings that other issuers had.

The company has been seeking premium increases that would raise premium revenue by $450 million per year, and it received approvals for $32 million in increases in the fourth quarter, Rider said.

He estimated that Transamerica has approvals for 76% of the targeted increases.

The Earnings

Aegon is reporting €526 million ($602 million) in net earnings for the fourth quarter of 2021 on €69 billion ($77.8 billion) in total gross deposits, up from €271 million ($310 million) in earnings on €44 billion in total gross deposits for the fourth quarter of 2020.

The Americas division is reporting $208 million in operating earnings and $128 million in life sales, compared with $304 million in operating earnings and $115 million in life sales for the year-earlier period.

New health and accident insurance sales increased to $46 million, from $22 million.

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Matt Rider (Photo: Aegon)