Ordinary and group annuity considerations for two of the largest writers in the U.S. for the first nine months of 2016 were down more than 20% compared with the nine-month period ended Sept. 30, 2015.
In total, the U.S. annuity market had $245.18 billion in annuity considerations (see full methodology below), which was essentially flat, down 0.20%, compared with the prior nine-month period. A further review of data in LIMRA Secure Retirement Institute’s news release on Nov. 21 shows that variable annuity sales totaled $79.4 billion through the first nine months of 2016, which was down $22.0 billion from the same period last year, while fixed annuities totaled $91.5 billion, an increase of 25%.
"There has been a significant drop in sales by independent broker/dealers this year as they prepare for the impending DOL fiduciary rule," said Todd Giesing, assistant research director for LIMRA, In addition, LIMRA believes the DOL's Conflict of Interest Rule will continue to impact variable annuities in 2017 if there are no changes prior to the implementation of the rule in April 2017.
Lincoln National, which fell out of the top 10 during the first nine months of 2016, echoed that sentiment during its third-quarter earnings call. "Finally, as it relates to the DOL, we have seen a major distributor narrow its shelf space … We expect to benefit from this trend if it continues," President and CEO Dennis Glass said on the call, according to a transcript. "We expect to see momentum in the fourth quarter and further sales gains throughout next year, recognizing there could be some disruption in the qualified market around DOL implementation. Ultimately, we expect to return to full-year positive net flows in 2018."
Due to the large decrease in variable annuity sales, companies including Prudential Plc U.S.-based unit Jackson National Life Insurance Co. and AEGON NV, which see the majority of annuity considerations coming from variable annuities, had the largest declines. Jackson National fell to third place with $14.12 billion in considerations, a decrease of 25.14% year over year. AEGON, which was in second place in 2015, is now in sixth place with $12.45 billion in considerations, a 21.14% decrease year over year.
Companies with larger fixed-annuity business have seen their considerations increase. Those include the groups led by New York Life Insurance Co. and Allianz Group, which were up 5.80% and 23.70%, respectively, over the same time period.
Some analysts believe that a rebound in sales could occur in 2017 with the unexpected results of the U.S. presidential election on Nov. 8. In a note to investors on Nov. 10, UBS stated, "We expect the administration could announce a delay to the implementation of the fiduciary rule in order to study the potential impact of the regulation. Given the central idea of the fiduciary rule is consumer friendly (i.e. putting a client's interest first is hard to argue with), we expect that the administration may eventually re-propose the rule [but] we expect the re-proposal would likely be less disruptive to business models and result in lesser legal liability."
Over the past several years, insurance companies, in particular life insurance companies, have struggled with their investment returns due to the longer-than-expected low interest rate environment. Since Nov. 8, the 10-year Treasury note has increased roughly 70 basis points. The increase has been aided by the Federal Reserve Open Market Committee announcement on Dec. 14 to increase the benchmark federal funds rate by 25 basis points to a target range of 0.75%. If the increasing interest rate trend continues, it will help investment yields for U.S. life insurance companies.
MetLife Inc., whose U.S. life units are ranked second in this analysis, held an investor day on Nov. 10, and during the Q&A portion of the presentation senior management was asked about the recent moves in the 10-year Treasury rate. Steven Goulart, chief investment officer, said MetLife likes the rate increase, but "the question is will it be sustainable ... There's also a view now in trying to focus on what are the policies of President Trump going to be and how is that going to impact the market," according to the investor day transcript, "Certainly we know there are things like a desire for more infrastructure spending, perhaps increasing debt levels, perhaps even generating growth. So all of those factors could potentially also be contributing to higher yields." MetLife would like to see the trend in interest rate increases continue, but on a "gradual path," Goulart said.
Click here to view a template that shows Life companies market share by line of business.
Methodology behind the rankings
The ranking includes SNL groups and companies independent of a group. To address the impact of foreign currency conversions for entities with a significant amount of business written outside the U.S., SNL adjusted the rankings to exclude such entities. As a result, American Life Insurance Co. (DE) and American Family Life Assurance Co. of Columbus were excluded, affecting the rankings of SNL groups MetLife and Aflac.
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.
SNL 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 persistency 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.
LIMRA is often cited by insurers when computing market share, but LIMRA only reports on new sales. LIMRA's standard definition of new sales is annualized new premium, which is based on 100% of new recurring premiums and 10% of single premiums.