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Insurance company executives say the current interest rate ice storm is hurting life and annuity sales.
Executives from American International Group Inc., Lincoln Financial, American Financial Group Inc. and FBL Financial Group Inc. have been talking about life insurance premium increases and annuity crediting rate cuts during conference calls with securities analysts.
AIG executives, for example, told the analysts that AIG is still profitable, that they think their long-range economic assumptions are still valid, and that they're happy with the company's pricing strategy.
Kevin Hogan, AIG's life and retirement chief executive officer, said lower interest rates are great for many types of investment income.
Sales of indexed annuities were strong in the third quarter, but "we expect lower levels of sales for certain products in the fourth quarter due to lower interest rates and the uncertain environment," Hogan said. "We expect lower sales of fixed annuities in the prevailing interest rate environment."
Dennis Glass, Lincoln's president, said Lincoln has cut the percentage of annuity sales coming from variable annuities with living benefits guarantees to about 50% of the total, from 70% five years ago.
Moving away from variable annuity guarantees Lincoln's long-term risk profile, Glass said.
In the life insurance market, "we are now at a point where two-thirds of our sales are not meaningfully affected by the level of interest rates," Glass said. "Nonetheless, we are making additional pricing changes, where needed, to reflect low interest rates."
The executives made the comments during conference calls with securities analysts, while going over their earnings for the third quarter.
The Context
Ameriprise Financial Inc. was the first major issuer of interest-sensitive products to announce its earnings this quarter. It reported higher earnings on higher revenue Oct. 24. But Walter Berman, the company's chief finance officer, said the company achieved those earnings in the face of wild swings in bond yields. At one point in the third quarter, the yield on 10-year Treasury notes plunged to 1.09%, down from 2.84% a year earlier.
Prudential Financial Inc. is preparing to announce its earnings later today. The list of insurers releasing earnings this week also includes Brighthouse Financial Inc. and Prudential Financial Inc.
The Earnings
American International Group Inc., New York (Stock symbol: AIG)
AIG is reporting $973 million in net income for the third quarter on $13 billion in revenue, compared with a $1.3 billion net loss on $11 billion in revenue for the third quarter of 2018.
Here's what's happening to the company's life and individual retirement businesses:
- Life Insurance Revenue: $1 billion (up from $809 million)
- Life Pre-Tax Income: A $7 million loss (down from $16 million in operating profits)
- Individual Retirement Revenue: $1.4 billion (up from $1.3 billion)
- Individual Retirement Pre-Tax Income: $387 million (down from $393 million)
At AIG, assumption change effects will lead to "no dramatic changes relative to the size of our reserves," Hogan said. "We do not see anything that changes our understanding of the inherent profitability of business. Nor do we see a need to change our pricing strategy."
The overall effect of the assumption update was to increase overall earnings by $20 million, Hogan noted.
"We will remain disciplined with respect to product pricing and features and continue to deploy capital to available attractive new business opportunities," Hogan said.
At the U.S. life business, "sales declined as we deemphasized guaranteed universal life sales in the current interest rate environment, and index universal life sales remain under pressure," Hogan said.
Life mortality was up during the quarter, Hogan said. He said the increase in mortality should be viewed in the context of generally favorable mortality trends over the past two years.
Lincoln National Corp., Radnor, Pa. (Stock symbol: LNC)
The top-level company at Lincoln National does business under the name Lincoln Financial.
Lincoln is reporting a $161 million net loss for the third quarter on $4.7 billion in revenue, compared with $490 million in net income on $4.4 billion in revenue for the third quarter.
Here's what happened to the results for Lincoln's annuity and life insurance units, when compared with the results for the third quarter of 2018:
- Annuity Revenue: $1.1 billion (unchanged)
- Annuity Operating Income: $169 million (down from $302 million)
- Annuity Commissions: $295 million (up from $278 million)
- Life Revenue: $2.1 billion (up from $1.8 billion)
- Life Operating Income: A $245 million loss (down from $176 million in net income)
- Life Commissions: $212 million (up from $173 million)
Glass said during company's earnings call that expanding the company's product menu, by adding products such as variable annuities without living benefits guarantees, has helped the company appeal to insurance agents, brokers and wholesalers.
