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Prudential Financial: Fiduciary rule uncertainty dampened annuity sales in Q2

Uncertainty about the final outcome of the Department of Labor's Conflict of Interest Rule continues to impact sales of annuities, according to Prudential Financial Inc. executives.

Speaking on a conference call Aug. 3 to discuss second-quarter earnings results, Stephen Pelletier, chief operating officer of Prudential’s U.S. businesses, noted that the phenomenon is not limited to Prudential.

"In regard to annuities sales, we do think what we've seen this last couple of quarters, not just us but the industry, is meaningfully driven by continued ambiguity around final outcomes in the DOL fiduciary rule," Pelletier said.

"I think continued ambiguity regarding final outcome of the rule may still continue to have an impact on sales," he warned.

Pelletier does think the rule could also affect the life insurance industry's defined contribution business but believes that would mostly be felt at the smaller end of the market.

The fiduciary rule requiring companies to follow a best-interest standard for their clients was partially implemented in June, with full implementation expected in January 2018 if it is not delayed.. A review period for the rule is under way, and Pelletier said Prudential is making its voice heard on "the importance of ensuring that the middle-class Americans are still able to access financial advice and financial solutions, including retirement income solutions."

Prudential Financial experienced a decline from the year-ago quarter in annuity sales but did see a modest sequential-quarter pickup due to some repricing done at the end of the first quarter, he said.

For Prudential's individual annuity business, total gross sales of $1.5 billion in the quarter were down from $2.3 billion a year ago, but up by $100 million from the prior quarter, according to a company presentation of sales and products mix in individual annuities discussed by Vice Chairman Mark Grier. He noted that this trend in gross sales reflects the repricing of the Prudential Defined Income annuity product as well as broader industry sales pressure he believes is a response to the fiduciary rule.

Executives did note on the call they were "quite happy" with the company's annuity book of business and its performance, saying it is well capitalized and has low volatility.