American Equity Committed to FIA Market

By Cyril Tuohy

The CEO of American Equity Investment Life Holding moved Thursday to reassure distributors and investors that the company has no plans to abandon the fixed indexed annuity business, which is on track to close $60 billion in sales this year.

Executives with the Iowa-based company earlier this year raised doubts about whether the company, the No. 2 seller of FIAs last year, could adequately supervise independent agents under new rules issued by the Department of Labor.

The rule raises investment advice standards for funds flowing in and out of retirement accounts.

“While our comments in last quarter's call were interpreted by some as American Equity abandoning the fixed indexed annuity business, nothing could be further from the truth,” said American Equity president and CEO John M. Matovina, in a call with analysts.

The company in June joined one of three lawsuits against the DOL seeking to overturn the fiduciary rule, which takes effect beginning in April. The first of three hearings will take place later this month, but experts say companies cannot wait for the outcome of litigation.

Independent agents conduct the bulk of FIA sales. Some insurers appeared to balk at accepting fiduciary responsibility on behalf of those agents, fearing they could be at higher risk of being sued under a higher investment advice standard.

Under the DOL rule, banks, insurance companies, broker-dealers and registered investment advisors are granted the authority to certify an agent transaction.

Insurance marketing organizations, also known as national marketing organization or field marketing organizations, cannot certify.

Billions of dollars in annual FIA premium is written by agents recruited by marketing organizations. Last year, American Equity alone sold nearly $7 billion worth of FIAs, according to Wink’s Sales & Market Report.

The rule favors the sale of annuity products through banks and broker-dealers, channels already equipped to adapt to the rules requirements. But “we are also developing a strategy to serve independent agents with high-quality, declared-rate annuities” with lifetime income benefit riders, said Ronald J. Grensteiner, president of American Equity Life Insurance.

Little Sign of Agents Jumping Ship

Shortly after publication of the fiduciary rule in April, industry analysts wondered whether it would lead to any realignment among independent agents, with some agents leaving one marketing organization for another.

So far, this doesn’t appear to be the case with companies looking to find ways to come into compliance with the rule, said Grensteiner, in a response to a question from an analyst.

Some marketing organizations are looking to buy a broker-dealer or a registered investment advisor, while the largest marketing companies have filed with the DOL to be able to sign off on the fiduciary transaction, Grensteiner said.

A DOL spokesman confirmed that six IMOs have applied to become financial institutions.

Marketing organizations devoted only or primarily to life insurance are looking for partners or other alternative strategies to survive under the new rule.

“But they are all very busy just like we are trying to figure out what their business is going to look like in the future,” Grensteiner said.

On Wednesday, American Equity reported second-quarter profit of $14.7 million on revenue of $459.8 million.

On a per-share basis, the West De Moines-based company said it had net income of 18 cents and earnings, adjusted for nonrecurring costs, came to 60 cents per share.

The results met Wall Street expectations. The average estimate of three analysts surveyed by Zacks Investment Research was also for earnings of 60 cents per share.

Revenue of $459.8 million topped forecasts. Three analysts surveyed by Zacks expected $459.3 million.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].