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Retirement Planning > Retirement Investing > Annuity Investing

Equitable Sees 'Rational' Registered Index-Linked Annuity Pricing

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What You Need to Know

  • Despite the new RILA market competition, Equitable's RILAs increased 10% between the first quarter of 2021 and the latest quarter.
  • Life and annuity executives say their companies are doing well despite years of low interest rates and a deadly pandemic.
  • F&G expects to have shares that will trade on the New York Stock Exchange, with the stock symbol FG.

Equitable Holdings’ life insurance business helped create the modern market for registered index-linked annuities, or RILAs.

Many other life insurers are now entering that market, attracted by the ability to tie returns to easy-to-manage options contracts, while having the ability to adjust just how much or how little market risk they protect the contract holder against.

Despite the new RILA market competition, Equitable’s RILAs increased 10% between the first quarter of 2021 and the latest quarter, to $2 billion.

Moreover, in spite all of the new RILA players, “we continue to see rational pricing in the RILA market,” Robin Raju, Equitable’s chief financial officer, told securities analysts Tuesday on a conference call the company held to go over first-quarter earnings.

The Big Picture

Raju — and other executives at big life and annuity issuers — looked out at the world this week and said they’re in a good position to help their customers protect their families and prepare for retirement.

The Federal Reserve Board started the week by complaining that it thinks life insurers have relatively high levels of debt.

But life and annuity executives noted that their companies have gotten through years of accounting and regulatory turmoil, years of low interest rates, and a COVID-19 pandemic that has killed 1 million people in the United States, and are doing well.

Mark Pearson, Equitable’s CEO, talked about the importance of insurers’ strength to the nation Tuesday, when his company went over its first-quarter earnings with securities analysts.

He noted that Equitable paid $61 million life insurance claims related to the COVID-19 pandemic in the first quarter alone, and that this result was within the range the company might have expected, given that it has suggested in the past that it expects to record about $30 million to $60 million in post-tax excess mortality costs per 100,000 U.S. pandemic-related deaths.

The United States recorded about 160,000 COVID-19 deaths in the first quarter.

“Equitable’s life products serve an important need in these difficult times,” Pearson said.

Pearson also talked about the role a company like Equitable meets when discussing the company’s target-date funds for defined contribution retirement plans, annuities, and new annuitization features for retirement plans.

“Obviously, we are meeting an important social need,” Pearson said.

Equitable is as strong as it is partly because it has used a big reinsurance arrangement and change in the mix of products it sales to reduce risk, and it is now generating significant, steady fee income from the 4,300 advisors on its holistic life planning team, Pearson said.

Rising interest rates increased yields on newly invested money to 0.5 percentage points higher than the rates Equitable is earning on maturing assets.

“This creates a tailwind for our business,” Pearson said.

Hedging and Distribution

Laura Prieskorn, CEO of Jackson Financial, and Marcia Wadsten, Jackson’s CFO, talked to analysts on Jackson’s earnings call about the derivatives programs insurers use to run and manage risk at big annuity operations.

Because of the way the programs work, some of the positive effects from rising interest rates could show up in earnings, risk-based capital ratio and other metrics at different times than the negative effects, Wadsten said.

Prieskorn said that overall, the future looks bright.

“We believe the opportunity for annuities to meet the retirement income and saving needs of Americans will remain robust,” Prieskorn said.

Prieskorn noted that Jackson has added a relationship with Raymond James’ Producers Choice Network, which has relationships with about 6,500 financial professionals and fee-based RIAs.

When the COVID-19 pandemic began, Jackson’s wholesalers had trouble meeting agents and advisors in person.

In the first quarter, in-person meetings returned, Prieskorn said.

“Meeting face to face enhances advisor engagement and builds product relation for Jackson and our distribution partners,” Prieskorn said.

An IPO

At Fidelity National Financial, the parent of F&G Annuities & Life, the focus of the earnings call was F&G’s upcoming call.

Fidelity National wants to distribute a 15% stake in F&G by paying a dividend to its own shareholders by the end of the year, simply to make F&G a higher-profile business and draw investors’ attention to the fact that it has been doing well.

One bit of spinoff news: F&G expects to have shares that will trade on the New York Stock Exchange, with the stock symbol FG.

Chris Blunt, F&G’s CEO, also talked about the company’s annuity pricing strategy.

Retail annuity sales fell a bit during the quarter because F&G was slower than some competitors to increase its own annuity rates in response to rising interest rates, Blunt said.

“Obviously, you need to remain competitive,” Blunt said. “You need to have good, competitive renewal rates. It’s incredibly important to both policyholders and to distribution partners.”

But F&G also wants to make sure the rates it thinks it can get on its own investments will be sustainable before changing product prices, Blunt said.

The Earnings

Jackson Financial is reporting $2 billion in net income for the first quarter on $4.3 billion in revenue, compared with $2.9 billion in net income on $5.5 billion in revenue for the first quarter of 2021.

Changes in the value of derivatives Jackson uses to run its annuity business cause big swings in the company’s revenue and net income.

Adjusted operating earnings, which exclude the effects of those value fluctuations, fell to $354 million, from $568 million in the year-earlier quarter.

The company posted $199 million in sales for its new registered index-linked variable annuity product, which arrived on the market in the fourth quarter of 2021.

Sales of traditional variable annuities fell 2%, to $4.6 billion.

Equitable Holdings is reporting $559 million in net income for the first quarter on $3.9 billion in revenue, compared with a $1.5 billion net loss on $1.2 billion in revenue for the first quarter.

Changes in the value of derivatives Equitable uses to run its business cause big swings in the company’s revenue and net income.

Operating earnings, which exclude the effects of those value fluctuations, fell to $538 million, from $600 million.

The flow of cash into the annuities the company now wants to sell, which are registered index-linked annuity products, increased to $665 million, from $559 million in the year-earlier quarter.

Brighthouse Financial is reporting $642 million in net income for the first quarter on $2.7 billion in revenue, compared with a $583 million net loss on $938 million in revenue for the first quarter of 2021.

Changes in the value of derivatives Brighthouse uses to run its annuity business cause big swings in the company’s revenue and net income.

Adjusted earnings, which exclude the effects of those value fluctuations, fell to $294 million, from $385 million in the year-earlier quarter.

Sales of annuities fell to $2 billion, from $2.1 billion.

Sales of life insurance fell to $20 million, from $23 million.

F&G Annuities & Life is reporting $236 million in net income for the first quarter on $748 million in revenue, compared with $289 million in net income on $539 million in revenue for the first quarter of 2021.

The company’s parent, Fidelity National Financial, has starting reporting F&G’s results separately, in preparation for the partial spinoff.

Sales of nonvariable indexed annuities fell to $962 million, down from $1 billion.

Sales of multi-year guaranteed annuities increased to $473 million, from $467 million.

The new pension risk transfer unit, which began recording sales in the third quarter of 2021, posted $527 million in sales.

Kansas City Life Insurance Co, is reporting a $7.7 million net loss for the first quarter on $119 million in revenue, compared with a net loss of $668,000 on $121 million in revenue for the first quarter of 2021.

Mortality cost related to the COVID-19 pandemic accounted for 12% of Kansas City Life’s total mortality cost in the first quarter, down from 13% of total mortality cost in the year-earlier quarter.

New premiums from sales of immediate annuities increased 55%, to $4.4 million.

Pictured: Laura Prieskorn, CEO of Jackson Financial