It's debatable if the fiduciary standard is 'higher' than suitability. But the better question might be, who's holding the bar?
By Cyril Tuohy
Annuities delivered big in the latest round of quarterly earnings thanks to higher interest rates and fatter portfolios’ swelling fee income.
Take American International Group (AIG). Its life and retirement division, which includes the life and annuities business, said index annuity revenue rose to $305 million in the quarter, compared with $55 million in the year-ago period.
Variable annuity revenue rose to $2.26 billion, an increase of $90 million, or 4 percent, compared with the year-ago period, the company also said.
Fixed annuity revenue reached nearly $1.1 billion in the second quarter, tripling from the year-ago period.
Jay Wintrob, president and chief executive officer of AIG Life and Retirement, said strong demand for guaranteed lifetime income benefits, broader distribution and more product tweaks helped his life and retirement division deliver revenue — premiums and deposits — of nearly $7.4 billion, an increase of 9 percent over the year-ago period.
AIG, which is made up of life and retirement, a property-casualty and a mortgage division, reported second quarter net income of $3.07 billion, an increase of 13 percent compared with the year-ago period.
The good-news story was much the same at Prudential. Prudential reported $11.11 billion in revenue in the second quarter.
Second quarter net income rose to $1.04 billion, from a loss of $517 million in the year-ago period, the company said.
John Strangfeld, chairman and CEO, said the turnaround was due in part to fee growth in the company’s annuity and asset management business.
Fixed and variable annuity account values in the second quarter rose to $159.52 million from $141.47 million in the year-ago period, the company said.
Rising interest rates and the Federal Reserve tapering its bond buying program should favor life and annuity companies, industry analysts have noted.
Fixed annuities, in particular fixed index annuities have been very popular over the last 12 months, according to LIMRA, so it’s no surprise that life and some specialty life and annuity insurers did even better than their larger industry cousins.
At Fidelity & Guaranty Life, a provider of index annuity and index universal life products, third-quarter annuity sales rose to $391.7 million, an increase of 45 percent from $270.5 million in the year-ago period, the company said.
“Sales of our core products; fixed index annuity and index universal life product lines continue to grow at a prudent pace,” Lee Launer, CEO of Fidelity & Guaranty Life, said in a news release.
Net income was $56.6 million, up from $53.2 million compared to the year-ago period, the company also said.
Revenue from fixed index annuities (FIA) rose to $378.6 million in the second quarter, an increase of 44 percent over the same period last year, the company said. “FIAs continue to march steadily up,” said Launer in a conference call with analysts.
Revenue from index universal life products was $5.9 million, an increase of 37 percent over the year-ago period, the company also said.
Launer said Fidelity & Guaranty Life benefited from sales derived through the independent marketing organizations, or IMOs.
IMOs value consistent and reliable underwriters, particularly in the face of “product fluctuation,” which happens when carriers move in and out of markets, or tweak annuity products to reduce exposures, as Prudential and MetLife have been doing with variable annuities.
“IMOs are attracted to us because we are consistent,” he said. “We focus on IMOs. They like that.”
Fidelity & Guaranty Life, which launched a new annuity in March, is preparing to launch two more products in the fall, he added.
Symetra Financial, a life, benefits and retirement specialist, said second quarter net income rose to $71.5 million, from $45 million in the year-ago period.
Revenue rose to $547.1 million in the second quarter, from $513.2 million in the year-ago period, the company said.
Revenue from deferred annuities in the second quarter rose to $650.3 million, an increase of 47 percent compared to the year-ago period, and revenue from income annuities increased to $89 million, from $45 million in the year-ago period, the company also said.
The company, which has significant presence in the bank-sold life and annuity business, said higher interest rates helped fixed annuities and fixed index annuities, as did the expansion of the company’s bank and broker/dealer distribution network.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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