The Pulse

Life/Annuity Earnings Remain Strong Amid Macroeconomic Volatility

Primerica, Lincoln National post double-digit revenue growth

A special report on industry health from AM Best.

April 02, 2019 — OLDWICK, N.J.–(BUSINESS WIRE)–Macroeconomic volatility continues to challenge the investment and operating environment for publicly traded U.S. life/annuity insurers. A slight decline of 3.6% in overall revenue during 2018 was attributable in part to a 25.3% decline in net investment income, according to a new AM Best special report.

The analysis in the Best’s Special Report, “Life/Annuity Earnings Remain Strong Amid Macroeconomic Volatility,” covers a majority of the U.S. life/annuity primary insurers that file U.S. GAAP statements. According to the report, two of the 18 companies in the analysis reported double-digit revenue growth over 2017, with Primerica at 12.5% and Lincoln National Corp. at 15.2%. Dollar for dollar, the largest drivers of growth were MetLife, Prudential, and Lincoln National, with revenue increases of $5.6 billion, $3.3 billion, and $2.2 billion respectively.

Indexed Based Products Sold Well

Over the last year, index-based products sold well and ordinary life products had less favorable growth. For example, with clarification regarding the Department of Labor Fiduciary Rule, variable annuity sales developed favorably. Furthermore, ordinary life products continue to face challenges from the diminished demand for them among younger generations, as well as from the emerging talent gap in hiring experienced agents.

Despite these headwinds, the industry reported an overall 7.7% increase in operating income...

The significant volume of assets held related to variable products exposes sales, earnings and guaranteed benefits of these variable products to equity market volatility. The S&P 500 hit record highs during the third quarter of 2018 but has since seen significant volatility, which can lead to a decline in fee income, as well as affect investment income. Market volatility in the fourth quarter of 2018, stemming primarily from trade and tariff wars, most likely played a large role in this volatility. Furthermore, low interest rates during the year continued to compress earnings spreads on more interest-sensitive businesses, such as universal life and fixed-annuity products.

Despite these headwinds, the industry reported an overall 7.7% increase in operating income. Changes in operating income on a company-by-company basis also were mixed for 2018. Overall, nine companies had an increase in operating income and nine had a decrease. Of the nine companies with increases, the top three on a percentage basis were American Equity Life (78.9%), MetLife (78.4%), and Manulife Financial (71.2%). The three companies with the largest decreases were CNO (155.1%), Unum (55.3%), and Genworth Financial (38.5%).

To access the full copy of this special report, please visit here.