American Equity CEO Sees Annuity Competition Moderating
One sign is changes in what clients can earn on contracts in a bull market.
The head of a midsize annuity issuer says the level of competition is becoming more rational.
Anant Bhalla, the CEO of American Equity Investment Life Holding Co., told securities analysts last week that he has seen some competitors changing contract terms in recent weeks. “There is this pocket of irrationality, but more rationality,” Bhalla said. “I think the top five or six players drive everything, and then there are some marginal new players that we’re very cautious about.”
What It Means
The spreads between the rates offered by the most generous non-variable annuities and the least generous might be widening.
You and your clients may want to review the reasoning behind issuers’ crediting rates and other contract terms.
The Earnings
American Equity held a conference call for securities analysts to go over first-quarter results.
New U.S. generally accepted accounting principles (GAAP) rules require insurers to put an estimate of the change in the value of future life insurance and annuity benefits in current earnings.
Because of the GAAP change, American Equity reported a $156 million net loss for the latest quarter on $662 million in revenue, compared with $679 million in net income on $148 million in revenue for the first quarter of 2022.
Non-GAAP operating income, which excludes the effects of the new mark-to-market rules for benefits obligations, increased to $124 million, from $107 million.
The average yield on invested assets climbed to 4.48%, from 4.15%.
Securities analysts on the call based their questions on the operating results, not the net results.
The Sales
American Equity’s sales of annuities increased to $1.4 billion, from $902 million in the year-earlier quarter, and sales of non-variable indexed annuities increased to $964 million, from $883 million.
The Competitive Environment
Bhalla suggested in February that he was already seeing some competitors lower crediting rates.
Last week, Bhalla observed that one sign of market rationality has been a reduction in non-variable indexed annuities’ cap rates, or the maximum rates that contract holders will pay when the investment indexes tied to the annuities perform very well. “I think the 12% cap rates are gone, which is nice, and we’re in the 10% to 11% range now,” he said. “There are one or two very irrational competitors with 15% cap rates, which I don’t understand, and I will not try to understand.”
American Equity is attracting high-quality distributors with systems that help agents and advisors write business quickly, Bhalla added.
“And distribution who wants to go to the marginal players, God bless them,” Bhalla said. “We focus on the ones who want to be with us.”
(Photo: Lucky-photographe/Shutterstock)