The pending implementation of the Department of Labor's Conflict of Interest Rule continued to weigh on U.S. life insurers' annuity business in the first three months of the year, as considerations declined for the third consecutive quarter.
Industrywide annuity considerations continue to be hampered by ordinary considerations, or premiums paid into policies by individuals, as group considerations were up year over year.
Life insurers' combined group and ordinary considerations were down 5.81% year over year. Group considerations climbed 3.98% compared to the first quarter of 2016, but ordinary considerations fell 11.61%.
The U.S. Department of Labor's Conflict of Interest Rule, often referred to as the fiduciary rule, has been cited as causing uncertainty within the individual annuity market since its promulgation in April 2016. Though the Labor Department in March delayed the initial implementation date until June 9 following a directive by President Donald Trump to examine the rule, Labor Secretary Alexander Acosta in late May announced the department will not further postpone the applicable start date. Acosta's decision came as a surprise to many industry observers.
The rule hold advisers to the higher fiduciary standard than the current suitability standard when they provide certain retirement advice. It is designed to encourage advisers to shift to fee-based products, though it does allow advisers to sell commission-based solutions through the Best Interest Contract exemption if certain procedures are followed.
Traditionally, annuities have been a commission-based product. A number of insurers, such as Lincoln National Corp., are updating their products to capture trends toward fee-based solutions. Lincoln National combined considerations were down 1.13% year over year and remained outside the top 10 by total annuity considerations in the first quarter.
Several publicly traded insurers noted on first-quarter earnings calls that index and variable annuities sales have been impacted by the regulatory environment. Kevin Hogan, executive vice president and CEO of global consumer insurance for American International Group Inc., acknowledged the "challenging sales environment" as a result of competition and the DOL rule, but stressed that the business was not reliant on any single product type given its strong position across the annuities space.
AIG in the first quarter fell to seventh in combined annuity considerations from the top spot it held a year earlier, according to an analysis by S&P Global Market Intelligence. AIG's combined group and ordinary considerations were down 25.62% year over year. Group considerations slid year over year by 2.82% and ordinary considerations tumbled 29.75%.
MetLife Inc.'s total decrease of 31.75% year over year was the largest in the analysis, with ordinary considerations down roughly 46%. Executives during a first-quarter earnings call cited the sale of MetLife Premier Client Group to Massachusetts Mutual Life Insurance Co. in second quarter of 2016, and the suspension of sales through one distribution partner, as the primary reasons for the decrease.
Nationwide Mutual Group's total annuity considerations of $3.42 billion in the first quarter pushed it in the top 10 as it moved up four spots to eighth. Nationwide Life & Annuity Insurance Co. accounts for roughly 96% of the 2016 net premiums written for Nationwide's individual index annuity 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.
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 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.