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Ordinary annuity considerations up for 2nd straight quarter

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Ordinary annuity considerations up for 2nd straight quarter

U.S. life insurers' ordinary annuity considerations have risen for the second quarter in a row after previously trending lower since the end of 2015.

Ordinary, more commonly called individual, considerations have been a drag on total annuity considerations as a shifting regulatory environment hampered new sales. One reason for the uncertainty centered on the Department of Labor's Conflict of Interest Rule, which was partially implemented in June 2017. Later that year, the Labor Department delayed its full rollout by 18 months to July 1, 2019. The U.S. Court of Appeals for the Fifth Circuit eventually completely vacated the rule in March; about a month after that, the SEC unveiled its own fiduciary rule.

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Life insurers' total annuity considerations rose 2.0% year over year during the first three months of 2018, according to analysis by S&P Global Market Intelligence. Within that total, group and ordinary considerations were up 4.1% and 0.6%, respectively.

Lincoln National Corp. had the largest ordinary consideration gains in dollar terms, growing to $2.62 billion in the first quarter versus $2.10 billion in the same period a year prior. The growth for Lincoln came from its variable annuity business, which was up 40% from a year earlier. Its fixed annuity business declined by 12%, according to executives on a first-quarter earnings call.

Prudential Financial Inc.'s total considerations increased to $4.0 billion during the quarter; its group and ordinary considerations were both up about 20%. Vice Chairman Mark Grier on an earnings call said the increase in ordinary considerations was mostly due to increased sales of its Highest Daily Lifetime Income products, explaining that the interest rate environment has boosted their attractiveness.

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Industry variable annuity sales were up slightly, by about 1.0% compared to the first quarter of 2017, based on sales survey information compiled by the Life Insurance and Market Research Association, or LIMRA. Despite the recent modest upticks, however, variable annuity sales are still down sharply from where they were five years ago.

Index annuities sales had a solid first quarter, reporting $14.5 billion in new sales, the second-strongest start to a new year since LIMRA started reporting on annuities sales.

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Two mutual companies, New York Life Insurance Co. and Massachusetts Mutual Life Insurance Co., shook up the top 10 rankings in the first quarter. New York Life took over the top spot from Jackson National Life Insurance Co., while MassMutual vaulted to fourth place after not making the list in the year-ago period.

Both companies had substantial growth in their group considerations, with each insurer up more than 70% year over year. Group annuity considerations have been aided in recent years by companies transferring their pension obligations to insurance companies.

New York Life and MassMutual are both active participants in the pension transfer market, a market that one MetLife executive recently stated could see up to $50 billion in obligations transferred in 2018.

Ordinary annuities refer to fixed and variable annuities sold to individuals. Group annuities include investment options typically available in tax-advantaged savings accounts and guaranteed investment contracts. Quarterly statutory statements combine first-year, single and renewal considerations and do not separate ordinary considerations by product type.

S&P Global Market Intelligence uses statutory total annuity considerations to determine market share. Total annuity consideration is a preferred indicator of market share as it not only reflects new business but also the persistence of a company's existing business in the form of renewal annuity considerations. Additionally, many policyholder acquisition costs are not recovered within one year. As such, total annuity considerations can also be a better indicator of profitability for life insurers, whereas new sales do not necessarily equate with profitability.

S&P Global Market Intelligence provides links to external sites where these offer further, relevant information to our readers. While we ensure that such links are functional at the time of publication, we are not responsible in instances where those links are unavailable later.

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Click here to view a template that shows life companies' market share by line of business.