U.S. life insurers continue to experience weakness in their ordinary annuities business, which pulled total annuity considerations down during the first nine months of the year.
Life insurers' combined group and ordinary considerations dropped 5.38% for the nine months ended Sept. 30. The slight increase of 1.97% in group considerations was not enough to offset the 9.98% decrease in ordinary considerations.
Uncertainty around the implementation of the Department of Labor's Conflict of Interest Rule has been cited by insurers' executives as one reason for weak ordinary, or individual, annuity sales. The Labor Department in November extended the implementation of key provisions of the rule for 18 months. The extension moves the compliance date to July 1, 2019, from Jan. 1, 2018.
Through Sept. 30, American International Group Inc.'s total annuity considerations were down 15.06% on a year-over-year basis. AIG's ordinary considerations fell by $2.86 billion, or 25.27% year over year. A review of quarterly earnings presentations show that AIG's premiums and deposits though Sept. 30 for individual fixed, variable and index annuities were down 38.24%, 33.33% and 13.64%, respectively.
Kevin Hogan, AIG's life and retirement CEO, in a third-quarter earnings conference call said the decline was caused by stronger competition in the fixed annuity space, a continued "disciplined approach" to product pricing and regulatory uncertainty.
Prudential Financial Inc.'s decrease of 17.37% in total considerations was the largest for the top U.S. annuity underwriters, according to an analysis by S&P Global Market Intelligence. The fall-off in Prudential's considerations was driven by a 33.00% decrease in ordinary considerations.
Prudential Vice Chairman Mark Grier on a third-quarter earnings call said industry pressures from the Labor Department rule, along with actions Prudential took to reprice its variable annuity product, contributed to the sharp decrease. The repricing is "consistent with our diversification strategy," Grier said, according to a transcript of his remarks.
Variable annuities have been a drag on ordinary considerations across the industry, according to LIMRA Secure Retirement Institute quarter survey results. LIMRA reported that quarterly variable annuity sales are the lowest in 20 years; sales have been trending lower since the beginning of 2014. Year-to-date variable annuities sales were $70.9 billion, or 11% lower than the prior year.
The survey shows woes in other product lines as well. Through the first nine months of 2017, fixed-rate deferred, index and total fixed products are down 14%, 9% and 11%, respectively, relative to the year-ago period.
In recent years, some insurers have benefited from companies transferring their pension liabilities through the purchase of group annuities. Pension buyout sales have hit at least $1 billion for the tenth consecutive quarter, according to a separate LIMRA survey.
In one such deal in August, Sears Holding Corp. agreed to purchase a group annuity from MetLife Inc.'s Metropolitan Life Insurance Co. subsidiary by transferring $512 million of future pension obligations for around 20,000 retirees.
Voya Financial Inc., which exited the pension risk transfer business in late 2016, saw group considerations climb 10.14% for the nine months ended Sept. 30. On Dec. 8, The Wall Street Journal reported that Voya was nearing a deal with Apollo Global Management LLC to sell as much as $50 billion in retirement-income annuities to the private equity firm.
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.
Click here to view a template that shows life companies' market share by line of business.