Insurers Beat Expectations In Q3, But Can It Last?

It was a memorable quarter for life and annuity insurers. Companies beat earnings estimates, key executives spoke of receding concerns surrounding the fiduciary rule, and the beleaguered variable annuity market showed signs of life.

The all-around good news – “Nirvana-like conditions,” in the words of one Wall Street analyst – aren’t sustainable over the long run, however.

Maybe not, but why rain on the life insurance party?

“Profitability across the industry has surged, reflecting favorable underwriting results and strength in equity-sensitive products,” wrote Morgan Stanley analyst Nigel Dally in a note to clients.

Third quarter results continued to build on strong results from the second quarter, with 15 companies in the analyst’s coverage universe beating expectations.

But there were plenty of other points of interest to come out of this quarter’s crop of earnings results, so here’s what we learned:

RBC Ratios, Pre-Tax Limits and Regulation

Insurance executives estimated that tax reform will cost life insurers an estimated 50 basis points to their RBC ratio, which is a measure of how much insurers must set aside to support business operations and how much of a cushion the firm must set aside to avoid insolvency.

Life insurance company CEOs don’t care for the $2,400 cap on pretax or tax-deferred funds into 401(k)s. Such a move would further discourage retirement savings, which are already too low if you believe what most retirement experts say.

With the fiduciary rule delayed by 18 months to July 1, 2019, financial advisors seem to be spending more time thinking about their client portfolios and less time worrying about how to fulfill the rule’s requirements.

Hurricanes, which walloped property/casualty insurers, also nibbled away at life insurance sales. Premium deadlines were extended and agent recruiting was delayed in some areas affected by the storms. The fourth quarter should make up for the sales lag.

Look for MetLife and the Federal Stability Oversight Council to file motions this week indicating how each party believes litigation should proceed in the wake of a recent Treasury Department report on how to regulate insurers and asset managers.

Marketing, Product Development and Insurance Lines

Colonial Penn is known for its TV commercials featuring Jeopardy! host Alex Trebek. But the company's marketing initiatives will continue to diversify away from television, a costly ad medium. The carrier sells graded benefit and simplified issue life whole life and term policies direct to consumers through TV advertising, direct mail, the internet and telemarketing,

If you think the buffered variable annuity market is hot now, wait until next year when more insurers launch their versions of the product. Allianz saw sales of buffered variable annuities in the U.S. market rise by 62 percent over the year-ago period even as the overall variable annuity market shrinks.

Rising stock markets spread good cheer. At American Equity Investment Life, this meant advisors tilting toward accumulation fixed indexed annuities (FIAs) over guaranteed income products suffering from low interest rates.

Underwriting results in group life improved markedly and benefits were very profitable for many insurers this quarter. However, long-term care results “have again emerged as an area of concern for some, but not all,” Dally wrote.

At Lincoln Financial, the company sold $79 million worth of all types of fee-based annuities in the third quarter, nearly as much as the company sold all of last year. Variable annuity sales without living benefits rose 23 percent to $573 million in the quarter compared with the year-ago period.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.
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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 cyril.tuohy@innfeedback.com.