Insurance Execs: June 9 DOL Doomsday a Dud

June 9, the dreaded implementation date for the initial phase of the Department of Labor’s fiduciary rule came and went.

Barely anyone blinked in the second quarterly earning calls over the past few weeks.

“The June 9 applicability date for the Department of Labor fiduciary rule came and went without much fanfare,” John M. Matovina, CEO of American Equity Investment Life Holding Co., told analysts in a call last week.

“Changes to agents’ sales practices required by the Prohibited Transaction Exemption 84-24, including disclosure of commissions and adherence to the impartial conduct standards proved to be manageable,” he said.

Think of surfers sitting on boards looking back at the swells coming their way only to rise and fall with the heaving water.

American Equity blew past analysts' expectations in the quarter.

On a per-share basis, the West Des Moines, Iowa-based company said it had profit of 30 cents. Earnings, adjusted for one-time gains and costs, were 71 cents per share.

The average estimate of four analysts surveyed by Zacks Investment Research was for earnings of 59 cents per share.

Adjusted revenue was $493.5 million, also surpassing Street forecasts. Three analysts surveyed by Zacks expected $484.8 million.

Matovia and other insurance chiefs in conference calls over the past two weeks offered their first assessments of the DOL fiduciary rule and the consensus seems to be that few people were bothered by the rule – if June 9 registered at all.

June 9 offered insurers an opportunity to see how wholesalers and distributors plan to handle the new fiduciary era, said Lincoln Financial CEO Dennis R. Glass.

(The calls were just before DOL regulators on Wednesday moved to delay most of the fiduciary rule by another 18 months, until July 1, 2019.)

Nine out of 10 of Lincoln’s distribution partners are offering advisors the choice between commission and fee-based annuity products, “and that’s very helpful,” to advisors and clients, Glass said.

Lincoln reported earnings, adjusted for non-recurring costs, of $1.85 per share.

The average estimate of six analysts surveyed by Zacks Investment Research was for earnings of $1.73 per share.

The rule is designed to raise investment standards into retirement accounts.

Commission-based income is still allowed but regulators want to tamp down on conflicts of interest sometimes generated by commission-based sales so advisors or their employers must certify they are looking out for the best interest of clients.

In response to the rule, insurance companies have also launched fee-based products giving advisors still more choices.

An Acceptable Outcome – So Far

After the June 9 implementation date, minor discomfort to agents selling annuities into retirement plans was reported, said Ray Wasilewski, chief operating officer, Life Companies, for FBL Financial Group, a top seller of insurance in the Midwest.

One of the company’s annuity products was suspended as the commission was too low and it made no sense to raise the commission on it, he said in late June.

Most advisors are OK with the initial implementation phase, said Aite Group senior analyst Denise Valentine, who surveyed advisors about the rule.

“The outcome has come out in a fairly decent place,” she said.

But if June 9 provided little disruption to agents and clients, the same can’t be said about the fiduciary rule affecting sales of certain annuity market segments.

Lingering ambiguity around the rule’s implementation will continue to exert a drag on annuity sales, said Stephen P. Pelletier, executive vice president, chief operating officer of U.S. Business with Prudential Financial.

Even so, individual insurers have found ways to spur sales through repricing.

“For us, while we saw a decline from year ago quarter in sales, we did see a modest sequential quarter pick-up, and that was due to some repricing of our PDI (Prudential Defined Income Variable Annuity) product that we did towards the end of the first quarter,” he said.

Variable annuities were one of the annuity segments hardest-hit by the rule.

New business life and health premiums in the U.S. shrank by 23 percent to $3 billion in the second quarter compared with the year-ago period, Allianz SE reported.

Despite the drop, CFO Dieter Wemmer said he expected a rebound in future quarters as Allianz Life Insurance Co. of North America adjusts to the fiduciary rule.

More Delays in the Offing

Agents were helped by their broker-dealers and independent marketing organizations, many of which spent millions of dollars to retool systems to make sure their compliance infrastructures were up to snuff.

By the time June came along, the burden on advisors had boiled down in many case to signing papers certifying and disclosing impartial conduct.

Storm clouds brewing before June 9 seemed to dissipate quickly thereafter even if the Insured Retirement Institute reported this week that advisors had dropped as many as 155,000 clients, presumably those with smaller, less profitable accounts.

Perhaps it speaks to the fact that insurers and distributors were well prepared, or maybe the industry’s robust lobbying efforts that caused regulators to push back some to Jan. 1, 2018, aspects of the rule including the pesky best interest contract exemption, which allows clients to join in class-action lawsuits against financial companies.

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].