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Large bank-owned life insurance deal boosts US premium growth outlook

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Large bank-owned life insurance deal boosts US premium growth outlook

A large bank-owned life insurance transaction entered by Zurich American Life Insurance Co. in the third quarter not only helped the industry offset weak growth in other business lines, it also serves to alter S&P Global Market Intelligence's projected growth rates in direct premiums and annuity considerations.

S&P Global Market Intelligence now projects a year-over-year decline of approximately 0.1% in total direct life, annuity and accident-and-health premiums and considerations for full year 2017 as compared with a previous projection for a 1.2% retreat. The revised outlook takes into account U.S. life industry statutory data through the third quarter of 2017, including the Zurich American Life transaction.

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For 2018, S&P Global Market Intelligence continues to expect a bounce back in annuity considerations from relatively easy 2017 comparisons. But the outlook for the year across all life, annuity and accident and health business lines now calls for growth in direct premiums and considerations of 4%, down from 4.3% previously, as a result of a modest upward revision to the ordinary individual annuity projection for 2017 and the unusually high 2017 group life result.

The revised projections call for growth in direct group life premiums of approximately 6% in 2017, well above the original projection for expansion at a rate of 1.3%. Direct group life premiums increased by nearly 7.7% through the first nine months of 2017 in large measure due to Zurich American Life's $1.71 billion year-over-year growth in the business line. Its direct group life premium volume totaled $1.77 billion for the first nine months of 2017 and $1.75 billion for the third quarter. The company accounted for 16.2% of the industry's $10.83 billion in direct group life premiums in the third quarter, up from less than 0.1% in the second quarter.

One-time spikes in premium volume are not atypical in the group life line, though not necessarily in as dramatic a fashion as Zurich American Life. In 2015, for example, direct group life premiums surged by approximately 10% in a result that was more than double would it otherwise would have been in the absence of unusually high volumes posted by Nationwide Life Insurance Co. and what is now known as Brighthouse Life Insurance Co.

Nationwide Life reported $1.44 billion in direct group life premiums in 2015 as compared with $515.2 million in 2014 and $571.2 million in 2016 as it benefited from a single case that brought in $1 billion in new corporate-owned life insurance business and $224.4 million in public sector retirement plan considerations resulting from participant rollover activity.

Brighthouse Life, which operated at the time as MetLife Insurance Co. USA, also benefited from what it described as a new $1 billion corporate-owned life insurance policy in 2015. Its direct group life premiums for the year totaled $984 million as compared with just $114,000 in 2014 and $78.6 million in 2016.

The revised S&P Global Market Intelligence outlook for 2018 direct group life premiums now contemplates a year-over-year decline of 1.4% as opposed to the previous projection for growth of 3.3%, reflecting the difficult comparison that the Zurich American Life comparison will create. Direct group life premiums fell by 3.6% in 2016 in a result that reflected the impact of the two aforementioned corporate-owned life policies.

The drag on sales of many types of ordinary individual annuities did not come as a surprise in 2017. But S&P Global Market Intelligence has revised its projections to assume a somewhat lower rate of decline in direct ordinary individual annuity considerations for the year. The higher 2017 resulted in a lower projected growth rate for 2018, however.

LIMRA's Secure Retirement Institute lamented in November 2017 that total U.S. annuity sales plunged to a 15-year low in the third quarter as the industry and independent marketing organizations in particular adapted to the U.S. Department of Labor's June 2017 initial implementation of the Fiduciary Rule. Industry representatives also cited equity market strength for sluggish overall sales of fixed indexed annuities.

Despite the gloomy commentary and sales trends, data for the first three quarters of 2017 shows that direct ordinary individual annuity considerations were down by just under 10% on a year-over-year basis. And there has been a mix of cautious and optimistic market commentary from some annuity writers in recent weeks as opposed to outright pessimism, including as the final version of federal tax reform legislation did not incorporate proposals that might have negatively impacted the economics of certain types of retirement savings products.

Executives at Lincoln National Corp. indicated during presentations in the closing two months of the year that they were seeing strength in individual annuity sales across products and distribution channels. President and CEO Dennis Glass went so far during an appearance at a December 2017 investor conference as to say he was "very excited" about his company's sales trends during the fourth quarter.

In accident and health, which is limited to business reported by entities that file life quarterly and annual statements, S&P Global Market Intelligence now projects direct premiums growth of 5.6% in 2017 as compared with a previous projection of 3.9%. The increase is driven by group accident and health business, where premium growth has been faster than originally expected at 9.1% through the first nine months of the year. Market leader UnitedHealth Group Inc.'s rate of growth in direct group accident and health premiums accelerated to 16.5% on a year-to-date basis through Sept. 30, 2017, from 11.5% for full year 2016.

The projections are built from S&P Global Market Intelligence's historical U.S. life industry aggregations from Exhibit 1 of quarterly and annual statutory filings. The historical and projected results exclude three entities largely focused outside of the United States: Aflac Inc.'s American Family Life Assurance Co. of Columbus (Aflac), MetLife Inc.'s American Life Insurance Co. (DE) and CICA Life Insurance Co. of America. Due to the limited line-of-business level information contained in quarterly statements, this update focuses solely on direct premiums and considerations.