Prudential: We’re Ready for DOL Rule

By Cyril Tuohy

Prudential Financial executives say they are prepared for the “full range of contingencies” when the Department of Labor’s conflict of interest rule is published in the coming weeks.

The comments coincided with those of two lawmakers blasting life insurance and retirement companies for their “doomsday predictions” for the fiduciary rule.

In a Feb. 11 letter to Labor Secretary Thomas Perez, U.S. Rep. Elijah E. Cummings, D-Md., and Sen. Elizabeth Warren, D-Mass., urged regulators to take note of several “dire and unsupported public predictions” in official comments submitted to the DOL.

The letter specifically cites comments made by Prudential, Lincoln National, Jackson National Life Insurance, and Transamerica executives during earnings calls over the past several months. In statements responding to the lawmakers, the carriers disputed any inconsistencies, noting they have an obligation to shareholders to make the best of a situation they consider damaging to customers.

Prudential’s product lines and mix of products are evolving to become simpler and more streamlined for distributors and policyholders, said Stephen Pelletier, executive vice president and chief operating officer of Prudential.

In its annuities segment, the Newark, N.J. company and its distributors are preparing to ramp up customer service for advisors, he said. The company has had fee-based products for some time, but as the regulation takes hold, “we might see more migration to that structure,” he added.

The company’s distribution network, Prudential Advisors, is adapting communications strategies to “educate the participants that we have,” Pelletier said.

Prudential Misses Forecast

Prudential reported fourth-quarter net income of $735 million, after reporting a loss in the same period a year earlier.

Operating income, adjusted for nonrecurring costs, came to $1.94 per share. The average estimate of 10 analysts surveyed by Zacks Investment Research was for earnings of $2.27 per share.

Prudential is the latest carrier to announce they will adapt in the face of some of the most far-reaching regulations affecting how the industry manages money in qualified retirement accounts.

Financial advisors and many big insurance carriers and broker-dealers fear the DOL rule will make it more difficult and expensive for advisors to conduct business, and that many advisors may leave the industry as a result.

Labor unions, consumer groups and President Barack Obama support the rule, which requires advisors to act in the best interests of clients when dealing with money held in qualified retirement accounts.

CNO Financial Beats Forecast

Among the priorities this year for CNO Financial Group, a Carmel, Ind.-based holding company serving the middle market, is to roll out a wholly-owned broker-dealer and registered investment advisor. The move will help generate more fee income, company executives said.

As many as 300 agents will move to the new platforms in 2016, and even more in 2017 and beyond as the in-house broker-dealer and RIA platform are expanded to the rest of the agency force. Company officials made the comments Tuesday in fourth-quarter earnings calls with analysts.

Agents are now on a third-party platform, which means CNO isn’t capturing as much income as it would if the broker-dealer and the RIA were in-house, company executives explained.

The RIA will allow the company to “pivot to the fee-based model,” in the wake of the DOL rule, executives added.
CNO Financial Group, a holding company for Bankers Life, Washington National and Colonial Penn, reported fourth-quarter earnings of $137.3 million.

Earnings, adjusted for nonrecurring gains, were 38 cents per share, the company said. The average estimate of five analysts surveyed by Zacks Investment Research was for earnings of 37 cents per share.

The company’s priorities including broadening recruitment channels and offering new incentives to attract more agents, CEO Ed Bonach said. Other priorities include raising the conversion rates from recruit to full-fledged producer, reducing long-term care exposures and raising rates on policies’ anniversary dates.

At Washington National, executives vowed to restructure the agent field force, introduce new products and expand the subsidiary’s geographic footprint.

Despite Record Sales, American Equity Life Misses Forecast

Despite record sales of fixed index annuities and development of the bank and broker-dealer channels, American Equity Investment Life Holding came up short of Wall Street expectations.

The West Des Moines, Iowa-based life and annuity seller reported fourth-quarter net income of $33.8 million, or 40 cents per share. Adjusted for costs, earnings were 60 cents per share, 2 cents short of estimates of three analysts surveyed by Zacks Investment Research.

Low interest rates forced managers to increase cash and short-term investment holdings, which affected what the company could reap in terms of investment income, company executives said.

Fourth-quarter sales of $2.1 billion, an increase of 86 percent from the year-ago period, set a record as the company captured market share in the independent agent distribution channel, said President and CEO John Matovina.

A presence in the fixed index annuity market over the years helped the company earn a reputation for consistency while other companies fled. When the market for FIAs expanded, “we expanded with it,” he said.

The company received a major boost from its Eagle Life subsidiary, which sells fixed index and fixed-rate annuities through broker-dealers and banks, Matovina said.

Eagle Life, which was formed to distribute annuities specifically through banks and broker-dealers, did so mostly through two “distribution relationships” in 2015, and several new relationships are expected in 2016, he said.

American Equity ended 2015 with more than 7,000 pending applications and plans to introduce a new lifetime income rider this year, Matovina said.

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].