Data shows a ‘wide range of outcomes for the largest individual annuity writers’A new report, authored by S&P Global Market Intelligence’s Tim Zawacki, reveals a ‘remarkably uneven’ recovery.
March 16, 2021 — The pace of the U.S. life and annuity industry’s emergence from COVID-19 disruption accelerated late in an otherwise challenging 2020, setting the stage for favorable year-over-year comparisons in key individual business lines in 2021.
Life, annuity, and accident and health direct premiums and considerations increased 1.1% in 2020, fueled by double-digit growth in group annuities and a smaller-than-expected decline in ordinary individual annuities, according to statutory data compiled as of March 8 by S&P Global Market Intelligence. Historical results exclude those entities for which 2020 data was unavailable as well as three entities that have traditionally produced the vast majority of their business from outside the U.S.
Growth rates across lines swung from a positive 7.5% in the first quarter of 2020 to a negative 7.7% in the second quarter. After a nearly flat third quarter, direct premiums and considerations increased 4.3% in the fourth quarter. S&P Global Market Intelligence’s full-year projection for a decline in overall direct premiums and considerations of 2.9% anticipated a more sluggish rebound across lines.
The recent trendline notwithstanding, the rate at which the industry bounced back from the worst of the pandemic in the second quarter of 2020 was remarkably uneven by business line and by company within key business lines. That lumpiness will make for easy and difficult comparisons alike through 2021, even when assuming a macroeconomic recovery and potential continuation of recently rising interest rates.
An Annuity Resurgence
The unevenness in industry premiums and considerations was especially apparent in the individual annuity business by quarter, product and company.
Direct premiums and considerations surged 9.7% in the fourth quarter of 2020 after having posted declines in each of the previous four quarters that ranged from 3.5% in the third quarter of 2020 to 20.5% in the second quarter of 2020.
Annual statutory statements do not provide granular detail regarding sales of particular categories of products, but survey data compiled by LIMRA’s Secure Retirement Institute shows some dramatic positive and negative changes. For full-year 2020, individual annuity sales fell 9%, but they rose 2% in the fourth quarter, according to the Secure Retirement Institute.
Sales of registered index-linked and fixed-rate deferred annuities surged 71% and 46% year over year in the fourth quarter of 2020, respectively, and by 38% and 10% for the full year. But at the other end of the spectrum, fixed indexed annuities capped off a challenging 2020 in which sales tumbled by 24% with a 17% fourth-quarter decline. Traditional variable annuity sales fell 12% in the quarter and the full year.
Statutory data shows a wide range of outcomes for the largest individual annuity writers in both the fourth quarter of 2020 and the full calendar year.
Ordinary individual annuity writings at the Brighthouse Financial Inc. group surged 37.9% for the full year, including a 75.2% boost in the fourth quarter. Direct writings in the individual annuity line for American Equity Investment Life Holding Co. ended the year down 25.9% even after a 100.1% surge in the fourth quarter, fueled by growth of 530.3% at Eagle Life Insurance Co.
Back In A Big Way
“We used the fourth quarter to tell distribution that we are back and in a big way,” said American Equity President and CEO Anant Bhalla during a February conference call, citing the introduction of three- and five-year single-premium deferred annuity products and the broadening of distribution capabilities. Eagle Life, Bhalla added, “is off to the races.”
Individual annuity business turned positive for full-year 2020 for the U.S. life units of Athene Holding Ltd. after they posted growth of 99.3% in the fourth quarter. The group led by Massachusetts Mutual Life Insurance Co. experienced a decidedly different trajectory, as it managed to achieve a 31.2% increase for the full year despite a 62.8% drop in the fourth quarter.
The extent to which COVID-19 disrupted production varied by product and distribution. In 2021, more typical factors such as interest rates, product innovation and market competition are likely to drive overall trends.
For group annuities where large contracts issued in connection with pension risk-transfer agreements often drive quarterly production, uneven results are a way of life.
Athene President William Wheeler said during a February call that there was “a flurry of activity” in the fourth quarter of 2020, which was evident in a 9.7% growth rate on an industry wide basis in group annuity direct premiums and considerations. Volume declined in each of the previous two quarters.
Wheeler added that Athene’s pension-risk transfer pipeline entered 2021 “in good shape,” but the industry faces a very difficult comparison in the first quarter owing to strong flows into stable value products that emerged from pandemic-induced volatility in the year-earlier period. First-quarter 2020 group annuity writings soared 37.1% industrywide as a result.
Life Business Limps To The Finish
Unlike the annuity business, the year-over-year growth rate in ordinary life premiums did not rally to end the year.
Our outlook for 2020 ordinary life premium volume anticipated that the industry would be hard-pressed to match its production for the fourth quarter of 2019. A pull-forward effect on sales ahead of some carriers’ adoption of updated mortality tables led to outsized growth of 11.0% for that period. And, indeed, direct ordinary life premiums posted their largest year-over-year decline of 2020 with their nearly 2% slide in the fourth quarter.
First-year and single-premium business fell 7.6% in 2020, marking the industry’s first such decline of more than 7% since 2008. It increased 11.8% in 2019.
Among large individual ordinary life writers, some of the companies that posted the fastest rates of first-year and single-premium growth in 2019 experienced double-digit rates of decline in 2020.
First-year and single-premium ordinary life business tumbled by 45.1% at Lincoln National Corp.’s Lincoln National Life Insurance Co. in 2020 after surging 28.1% in 2019, for example. President and CEO Dennis Glass, speaking during a February call, cited “record” fourth-quarter 2019 sales and repricing actions for an unfavorable comparison in sales volume. The company has begun rolling out new products that account for the current challenging general account investing environment.
Although there had been much discussion around the industry during 2020 about pandemic-related sales disruptions, Glass said that lower interest rates had the most significant impact on Lincoln’s volume.
The current rising rate environment, as highlighted by a yield on the 10-year Treasury that traded March 12 in excess of 70 basis points above the year-end 2020 level of 0.92%, in combination with easier year-over-year comparisons suggest better days to come.