Carriers Report Earnings Mix, DOL Rule Cited

The Department of Labor’s fiduciary rule features prominently in at least one earnings news release by a leading annuity carrier. Company executives are expected to say more about the rule in earnings conference calls Thursday morning.

American Equity Reports Loss, Earnings Miss

American Equity Investment Life Holding Co., a top seller of fixed and fixed indexed annuities (FIA), on Tuesday reported a first quarter loss of $44.8 million compared with net income of $5.9 million in the year-ago quarter, following a $28.4 million charge in connection with deferred acquisition costs.
Operating income was 25 cents per share, the company said. The average of three analysts with Zacks Investment Research was for operating income of 60 cents per share.
The West Des Moines, Iowa-based carrier, also posted first-quarter revenue of $450.8 million, surpassing analysts’ estimates.
Deferred acquisition costs increased the company’s net loss by $28.4 million. Stiffer competition for hot-selling FIAs in the independent agent distribution channel meant they were more difficult to sell in the first quarter compared with the end of last year, when the company notched record FIA sales, the company said.
The decline in FIA sales was offset by higher sales of multiyear guaranteed fixed annuity products, the company said.
Company executives issued a statement on the Department of Labor’s fiduciary rule, which holds agents selling FIAs and variable annuities to a higher standard of care than in the pass, unless exempted.
Critics of the DOL rule say it risks creating a drag on future annuity sales, and the annuity community was surprised when regulators lumped FIAs in with variable annuities as falling under the Best Interest Contract Exemption.
“The last minute change without the opportunity to make comment is contrary to the rule making process government agencies are expected to follow,” said American Equity Investment Life President and CEO John Matovina, in a news release.
“Fixed index annuities are treated in a way that cannot be justified as merely a means of minimizing conflicts and the rule disregards their status under federal securities and state insurance laws,” he added.
The BICE presents “numerous obstacles” to compliance, the company said, and American Equity would “not be surprised if multiple lawsuits are filed on procedural and substantive matters.”

CNO Financial Falls Short of Expectations

First-quarter net income at CNO Financial Group Inc., a holding company in Carmel, Ind., serving middle-income preretirees and retirees, dropped 14 percent to $45.5 million compared to the year-ago quarter, the company reported Wednesday.
The drop was due in part to lower sales of life and Medicare supplement products and flat agent recruiting at the company’s Bankers Life and Casualty subsidiary, the company said.
First-quarter operating income per share was 27 cents, the company reported. Results missed expectations. The average estimate of four analysts surveyed by Zacks Investment Research was for earnings of 32 cents per share.
CNO Financial is a holding company for Bankers Life and Casualty, Colonial Penn Life Insurance and Washington National Insurance.
An investment in Tennenbaum Capital Partners, an alternative investment management company in Santa Monica, Calif., is expected to increase CNO’s nonlife investment returns, said CNO CEO Ed Bonach.
“We are encouraged by the growth in our business," he added.
The company posted first-quarter revenue of $960.4 million, the company said. First-quarter new annualized premium increased 2 percent to $107.8 million from the year-ago quarter, the company said.
First-quarter collected premiums rose 11 percent to $896.3 million compared to the year-ago period, the company said. Policies in-force rose 1 percent to 3.5 million compared to the year-ago quarter.

Torchmark Beats Street

Torchmark, a McKinney, Texas-based financial services holding company that specializes in life and supplemental health insurance for middle-income Americans, reported first-quarter earnings of $124 million, a 2 percent increase from the year-ago period.
The company benefited from accounting changes in stock compensation accounting, which affect net income computations, the company said.
Net income of $1.01 per share, adjusted for one-time gains and expenses, came to $1.08 per share, the company reported Tuesday, besting the average of 10 analysts at Zacks Investment Research by one cent per share.
The company’s products are sold through American Income Life, National Income Life, Global Life, Liberty National, United American, First United American and Family Heritage Life.
American Income Agency, where first-quarter life premiums of $220 million rose 9 percent from the year-ago period, is expected to end 2016 with between 6,600 and 6,750 agents, a company executive said.
At LNL Agency (Liberty National), where first-quarter life premiums of $68 million were flat compared with the year-ago quarter, agent count is expected to end the year at about 1,725 agents, a company executive said.
At Family Heritage Agency, agent count will end the year at between 900 to 1,000 agents, a company executive said.
The average producing agent count during the first quarter was 827, an increase of 5 percent from a year ago, but a drop of 6 percent from the fourth quarter, the company said.
Family Heritage ended the first quarter with a producing agent count of 881.

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