American Equity is making big changes to its annuity portfolio in response to new economic realities, executives said today.
A leading provider of fixed indexed annuities, American Equity struggled through a tough start to the year, CEO Anant Bhalla said during today's first quarter earnings call.
"Entering the quarter, we were not the most competitive in either the accumulation or income markets, primarily driven by some competitors who in our view were being aggressive in order to gain market share," he said. "With the recent market events, these competitors have lowered their rates to more sustainable levels for them, thereby having bridged the competitive gap in our favor."
In particular, the company's S&P 500 Dividend Aristocrats DRC 5% Excess Return strategies "now illustrate particularly well," Bhalla said.
American Equity will reshuffle its annuity lineup and Bhalla described what appears to be the development of the company's first true proprietary index. A American Equity spokesman did not return a message for comment.
"We are in the process of refreshing our product line beginning with our accumulation product portfolio," Bhalla said. "These serve as a very compelling alternative to offerings inside traditional equity-bond allocation strategies. As a first step, we will be introducing our first multi-asset index strategy in June. ... This adds to our distribution partners tool-kit of client solutions, while reducing the vulnerability of cost of money to changes in implied volatility in the marketplace as is the case for plain vanilla S&P 500 annual point-to-point participation rate strategies."
Distribution continues to be a challenge during COVID-19, Bhalla said. The company expects to see sales affected in the months ahead.
"It seems likely that sales will remain subdued until social distancing needs abate or producers find new ways to engage with clients and the dining table discussion in households shifts from primarily health concerns to longer term issues around wealth and retirement income," Bhalla said.
Annuity Sales Down
Annuity sales fell to $705 million, down 43% from the total for the first quarter of 2019, American Equity reported. The Des Moines company recorded $243 million in net income for the first quarter on negative $324 million in revenue. That compares to a $30 million net loss on $1 billion in revenue for the first quarter of 2019.
The first-quarter negative revenue figure was attributed to a change in the fair value of the derivatives American Equity uses to hedge annuities against stock market ups and downs.
American Equity will be offering more conservative terms to customers going forward, Bhalla said.
“Due to the continued elevated levels of market implied volatility since March, which impacts the cost of buying options for certain index strategies, we will begin reducing renewal participation rates on $4.3 billion of policyholder funds starting June 1,” Bhalla said. “We intend to be financially prudent and disciplined in managing in-force and new money cost, while staying true to our core beliefs in always doing the right thing by our clients and producers."
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at email@example.com. Follow him on Twitter @INNJohnH.
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