Tax Cuts Spur Growth, Which Helps Insurers, Agents

Insurers and distributors will benefit from lowering tax rates and eliminating the estate tax as part of a broader emphasis on encouraging the growth of small and midsize businesses. That was the word from Daniel J. Houston, Principal Financial Group’s president, chairman and CEO.

President Donald Trump proposed the "biggest" tax cut ever, including fewer income tax brackets.

The estate tax, known as the “death tax,” would be eliminated under the president’s proposal, although critics have dismissed the cuts as a giveaway for the ultra-rich.

Wealthy individuals use life insurance to lessen the estate tax bite. So if the estate tax disappears, then demand for specially structured life insurance contracts could weaken as well.

Regardless of whether taxes rise or fall, workers generally benefit more from employer matches, payroll deductions and institutionally priced retirement products, Houston said in a conference call with analysts.

Principal Financial is a top supplier of retirement services to small and middle-market businesses.

Retirement plans such as 401(k)s are tax deferrals, not tax deductions, he said.

Using life insurance or mutual funds as a funding device for nonqualified deferred compensation is a key retirement management strategy. However, Trump administration officials have not released any details of the proposed tax cut.

If tax cuts fuels business growth, then business payrolls grow.

Payroll growth means higher demand for employer-sponsored benefits such as disability insurance, health insurance and access to retirement savings plans.

Strategy Unchanged in Face of DOL Rule Delay

Moving back the Department of Labor’s fiduciary rule to June 9 from April 10 “doesn’t change much” for Principal Financial, Houston said.

“We continue to work closely with our distribution partners and to actively engage in discussion around the implementation of the final rule,” Houston said.

The fiduciary rule raises investment advice standards into retirement accounts and requires insurers and distributors to implement expensive new procedures.

Whether issue is tax repeal or tighter advice standards, it’s important to remember that agents and advisors are in the planning business helping with life and disability protection, wealth distribution, education funding and securing financial futures, he said.

Demand for protection and retirement hasn’t diminished no matter who is in charge in the nation’s capital.

1Q Earnings Surpass Expectations

Principal reported first-quarter net income of $348.9 million.

On a per-share basis, Principal said it had net income of $1.19. Earnings, adjusted for investment costs, were $1.27 per share.

The results exceeded Wall Street expectations. The average estimate of five analysts surveyed by Zacks Investment Research was for earnings of $1.17 per share.

The financial services company posted revenue of $3.07 billion in the period.

Principal shares have climbed 13 percent since the beginning of the year, while the Standard & Poor's 500 index has increased nearly 7 percent. In the final minutes of trading on Thursday, shares hit $65.18, a climb of 48 percent in the last 12 months.

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.