The U.S. Department of Labor's Conflict of Interest Rule couldforce American Equity Investment LifeHolding Co. to expand its suite of annuities products, after it warnedthat new restrictions placed on fixed-indexed annuities were "not drafted tobe workable" for independent agent distribution of those annuities.
The insurer April 27 criticized the final , commonly known as the fiduciaryrule, for its surprise inclusionof fixed-indexed annuities among the financial instruments held to higher standards.Retirement investment advisers would need to sign contracts holding themselves accountableas fiduciaries if they want to sell the product, a requirement that life insurersbelieve will dampen the willingness to offer fixed-indexed annuities in the firstplace. American Equity derives more than 90% of its earnings from indexed annuities.
"Fixed index annuities are treated in a way that cannotbe justified as merely a means of minimizing conflicts, and the rule disregardstheir status under federal securities and state insurance laws," the companysaid, adding that similar retirement products were exempted from the rule's higherstandards. "The Company is aware of several parties considering litigationoptions and strategies. The Company would not be surprised if multiple lawsuitsare filed on procedural and substantive matters."
The potential sales barriers created by the fiduciary rule couldprompt American Equity to sell more traditional declared-rate annuities that offerlifetime income riders and other features but would sidestep new limits imposedby the federal government. The company also said the new rule is "more workable"for and a smaller threat to fixed-indexed annuity sales through broker/dealers andbanks. The company expects broker/dealers and banks to continue selling the product,but some may look to change compensation or product design to meet compliance obligations.
In the same statement, American Equity said it would generateabout $135 million in net proceeds from the physical settlement of two equity-forwardsales agreements later in 2016. The insurer will then issue about 5.6 million commonshares. Its net sales in 2015 were 10% ahead of the sales level estimated in itscapital planning, and net sales for 2016 could exceed its plans as well.
American Equity said it has two alternatives for raising capital— the potential for reinsurance deals and the issuance of additional debt.