Ameriprise Continues to Adjust Life and Annuity Products for Low Rates

Executives at Ameriprise Financial are hoping the Federal Reserve will move forward with pushing interest rates higher soon, but they are going to shape the company's life insurance and annuity products to reflect the current low-rate environment. Walter Berman, the Minneapolis-based financial services company's chief financial officer, said the idea of a rate increase has would-be buyers looking at what could happen to the performance of blocks of insurance business, and especially at what could happen to the performance of long-term care insurance blocks. "Certainly, that's a lot of people's thinking," Berman said. But Berman and Jim Cracchiolo, Ameriprise's CEO, emphasized that, at this point, the company is responding to the very low interest rates now available on bonds and other fixed income investments by cutting benefits guarantees out of life and annuity products. Ameriprise eliminated three of the four living benefits guarantee riders that had been available with its variable annuities Jan. 1, Cracchiolo said. "These three riders represented 98% of our living benefit sales for the past year," he said. "And, by the end of the second quarter of 2022, we will have stopped all new sales of our one remaining rider, which represents a very, very small part of our business." On the insurance side, Cracchiolo said, Ameriprise is making similar moves: The company has discontinued sales of universal life with secondary guarantees and sales of universal life products that offer long-term care benefits. The executives talked about the effects of interest rates on life, annuity and LTCI products, and insurance deals in a conference call the company held Thursday to go over results for the fourth quarter of 2021 with securities analysts. The quarter ended Dec. 31. The company has posted a recording of the earnings call, and other earnings-related materials, on the investor relations section of its website.

What It Means

Ameriprise is the first publicly traded life, health and annuity issuer to post fourth-quarter earnings. For agents, brokers and planners who help people with annuities and income planning, the executives' comments mean that, for now, while insurers wait to see if the Federal Reserve does what it can to get interest rates up off the floor, any life and annuity product guarantees that are still available are precious.

Why Interest Rates Matter to Life and Annuity Issuers

Because of regulatory constraints and rating agency guidelines, life insurers tend to rely heavily on income from investments in bonds, notes and other fixed income securities from highly rated companies to support benefits guarantees. Rates fell sharply during the 2007-2009 Great Recession but were starting to creep up. Rates then plunged in the wake of the COVID-19 pandemic and the resulting market turmoil. Low rates have made offering some types of guarantees difficult by reducing or eliminating insurers' ability to use income from high-grade corporate bonds to fund the guarantees.

The Earnings

Ameriprise as a whole is reporting $701 million in net income for the fourth quarter of 2021 on $3.8 billion in revenue, up dramatically from $177 million in net income on $3.2 billion in revenue for the fourth quarter of 2020. The Retirement & Protection unit, which runs the company's insurance operations, is reporting $183 million in pretax adjusted operating earnings on $815 million in revenue, up from $180 million in operating earnings for the year-earlier quarter. In spite of the product changes, variable annuity deposits increased 15%, to $1.5 billion. Sales of life and disability insurance increased 41%, to $97 million, thanks to strong sales of variable universal life products. For help with finding information about more fourth-quarter earnings release dates, see our Q4 Life, Health and Annuity Earnings Calendar. .. Ameriprise headquarters in Minneapolis. (Photo: Ariana Lindquist/Bloomberg)