Competitors In Line To Profit From Ohio National Dropping Annuities

Ohio National headquarters in Cincinnati.

Several competitors stand to gain from Ohio National's sudden decision to leave the annuity and retirement plans markets, one analyst said Thursday.

The Cincinnati-based company will stop accepting all annuity applications and applications for 401(k) and 403(b) retirement plans beginning Sept. 15.

“While we are no longer selling new annuities or retirement plans, we will continue to support all contracts in force through their maturity,” said Angela Meehan, vice president of corporate marketing. “That includes making all payments and providing ongoing customer service and support.”

Ohio National distributes primarily through the bank and broker-dealer channels and competitors that stand to benefit the most from the pullback are other insurers with common distributor relationships in those channels, said Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink Inc., publisher of market tracker Wink’s Sales & Market Report.

“I would think that companies such as Great American, AIG and Allianz would most certainly be interested in this development,” Moore said. “These companies will likely absorb the sales that Ohio National leaves on the table.”

Ohio National distributes life and annuities through an independent producing general agent channel with about 11,000 agents, and through a career agency channel with about 4,000 agents, the company said.

“Ohio National is still standing behind the policies it has in force,” said Bob Garofalo, vice president and senior credit analyst with Moody’s. “From a policyholder perspective, expect no change in the level of services.”

Strong Credit Rating

Moody’s maintained a high-quality A1 credit rating on the company, a sign that Ohio National remains well within its ability to pay claims.

Agents with questions can call the Ohio National regional officer in their area, Meehan said.

About 300 people will be laid off, primarily employees at the company’s corporate headquarters in the greater Cincinnati area, the company said.

Ohio National said it is leaving the annuity and retirement business to focus on U.S. life and disability income insurance, and grow its presence in Latin American markets, which are attractive because of the growing middle class in those countries.

“We strongly believe this strategy will provide us with greater long-term financial flexibility to invest in product, technology and services that provide value to our policyholders and customers,” said Ohio National COO Christopher A. Carlson, in a news release.

Carlson, who was appointed president and COO only last month, has acted quickly to steer the storied 109-year-old company into more profitable business lines.

Sales Numbers Tell The Story

The numbers tell the story of why the company is retrenching into life and disability income, and pushing into international markets.

Disability income insurance sales rose 120 percent to $6 million last year over 2016 and international insurance sales rose 20 percent to $37 million, the company reported.

Sales of life insurance fell 3.8 percent to $181 million from 2016.

Annuity sales fell 13.3 percent to $1.3 billion last year compared to 2016 and retirement plan sales fell 47 percent to $88.7 million last year compared to 2016, the company reported.

Annuities are a “spread business,” governed by interest rate movements with little maneuvering room for insurers, many of whom sold VAs with living benefits that have become very expensive to honor in a low-interest-rate environment.

With life insurance contracts, insurers have more leeway in adjusting premium levels and the cost of insurance, calibrating underwriting requirements and choosing among distribution channels. That helps management adapt more quickly to changing economic environments.

Interest rates remain low by historical standards and low rates are often cited as a reason for companies fleeing for more profitable lines. The continued push to strengthen regulations also factored in Ohio National's decision, the company said.

“We have reached the limit of annuity business we believe is appropriate for our balance sheet as we go forward,” Meehan said. “With regard to the regulatory landscape for annuity products, we believe it has become substantially more difficult over the past several years.”

In June, Voya closed on the sale of its annuity portfolio and the company’s life portfolio is under review and MetLife shifted much of its annuity business into Brighthouse, a new company that went public last year.

Life, DI Lowers Risk Profile

Leaving the annuity world for the life and disability income insurance world will subject Ohio National to less risk and allow its life and disability insurance business a better chance to further flourish, Garofalo said.

From a credit risk perspective, disability income products stand between the higher-risk VA business and the lower-risk life insurance business, he added.

Last October, Ohio National’s index life product Virtus IUL joined the fast-growing IUL market and the company two years ago launched ContinueON II, an updated version of its disability income product.

Ohio National has been active in the VA market for several years with a sizeable in-force book, but only last year entered the index annuity space.

Its ONdex Freedom 7 was a top-10 selling index annuity distributed through national full-service broker-dealer channel, Wink reported.

Like the VA market, the index annuity market requires size, scale, distribution and financial resources, and though Ohio National does have resources, the company was a new entrant in the index annuity market, Garofalo said.

Ohio National had $186 million in variable annuity sales in the second quarter, down from $250 million in the year-ago period, Morningstar reported.

The company sold $635 million in index annuities in the first half of this year, LIMRA reported.

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