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Insurance execs: New retirement savings advisory rule dampening annuity sales

Several life insurance executives referred during earnings calls to sluggish annuities sales that they blamed on the new Department of Labor Conflict of Interest Rule that became applicable to their businesses during the second quarter.

Full implementation of the fiduciary rule is scheduled for Jan. 1, 2018. But American Financial Group Inc. is uncertain whether the rule will take effect in its current form, Craig Lindner, co-president and co-CEO, said during the company's Aug. 2 quarterly earnings call. Subsidiary Great American Insurance Co. was the fourth-largest individual seller of fixed annuities in the U.S. for the first quarter at $976.0 million, according to the latest quarterly figures available from life insurance association LIMRA.

Observers and many in the life insurance business expected that the administration of President Donald Trump would block the change or make substantial alterations to it and were surprised when the new Labor Department leadership allowed the rule to take effect. American Financial expects its annuity premiums to be flat for 2017 compared with 2016, according to an investor presentation accompanying the company's earnings release. The insurer forecasts year-over-year growth in fixed annuity investments and reserves in 2017 and expects no major impact on results, Lindner said.

Lindner thinks the change will continue to impact annuity sales in 2017 and into 2018, but that they would not bear much on his company's results, he said, according to a transcript of his remarks.

"We believe that our business model, which we adopted many years ago, positions us well in a changing regulatory environment," the co-CEO said.

The rule change mandates a fiduciary standard for retirement savings advice, under which companies must act in clients' best interest in selling products with strict contractual exceptions.

Voya Financial Inc. saw its first-half sales of fixed index annuities trail the same period in 2016. COO Alain Karaoglan attributed the slump to companies adapting to the implementation of the fiduciary standard, Karaoglan said during Voya's second-quarter earnings conference call.

"We expect this to continue during the second half of 2017," he said. Second-quarter sales in the business were down 5% year over year, and first-half sales lagged the comparable period of 2016 by 11%, according to an earnings presentation.

Prudential Financial Inc. also saw a year-over-year quarterly decline in annuity sales, although numbers improved from the first quarter. Ambiguity surrounding the implementation of the rule will continue to impact sales, COO Stephen Pelletier said.

Agents for annuity specialist American Equity Investment Life Holding Co. found the new requirements implemented June 9 manageable, said John Matovina, the company's chairman, president and CEO. Among those changes were disclosure of commissions and adherence to impartial conduct standards. American Equity was second in individual fixed annuity sales during the first quarter at $1.03 billion.

American Equity is optimistic that the Labor Department will delay the full implementation of the rule, Matovina said during the company's second-quarter earnings call, according to a transcript. The company also hopes that "regulations unduly burdening distribution of annuities by independent agents will be substantially revised," he said.

American International Group Inc. believes the Labor Department rule has been a drag on individual retirement sales, but that competition has too, said Kevin Hogan, CEO of subsidiary Global Consumer Insurance. The company put in place the changes needed to comply with the new standard and is on track for full compliance in 2018, Hogan said during AIG's earnings call, according to a transcript.