When the Department of Labor’s fiduciary rule was released in April, analysts expected a rush to sell more fixed indexed annuities (FIAs) in anticipation of distributors having a tougher time selling them next year.
But instead of rising in the third quarter from the second quarter, sequential sales of FIAs softened well ahead of schedule. In addition, it seems as though the urgency among agents and distributors to sell FIAs as not materialized, according to a top life and annuity company.
Sales of FIAs by independent agents for American Equity dropped 26 percent in the third quarter from the second quarter. However, a softening was expected in the wake of very strong sales in the first half, said American Equity president and CEO John Matovina.
The expectation is that the sequential decline in sales by independent agents is consistent with the rest of the overall market, said Matovina said in a news release.
The question is why, but the answer is that insurance company executives aren’t quite sure.
“It’s an interesting phenomenon,” said Ron Grensteiner, president of American Equity, in a conference call with analysts earlier this month.
Reasons for softening sales range from investment dollars flowing into relatively strong equity markets, to pre-election uncertainty, lower cap rates, reduced compensation and competition.
In addition, many independent marketing organizations, through which annuity companies distribute their products, are still awaiting Labor Department approval to sell FIAs under the Best Interest Contract Exemption.
As of late October, 18 IMOs had applied to sell under the exemption.
The question Wall Street analysts are asking themselves is whether to hit the FIA sales reset button after several quarters of torrid growth.
American Equity Misses Estimates
American Equity, one of the top sellers of fixed indexed annuities in the U.S., reported a third-quarter loss of $7.4 million, compared with a profit in the year-ago period. These results came up well short of analysts’ expectations.
The company said it had a loss of 9 cents per share. Losses, adjusted for nonrecurring costs, came to 5 cents per share.
The average estimate of four analysts surveyed by Zacks Investment Research was for earnings of 57 cents per share.
Revenue was $463.6 million in the period, the company reported. Three analysts surveyed by Zacks expected $466.7 million.
More than $53 billion worth of FIAs were sold last year, setting a record. Third-quarter sales data are expected to be released shortly by Wink’s Sales & Market Report.
Bank, Broker/Dealer Channel FIA Sales Also Fall
Sales of FIAs through the bank and broker/dealer channel also fell, American Equity reported.
Third-quarter sales at Eagle Life, American Equity’s subsidiary that sells FIAs through banks and broker/dealers, were $348 million, Grensteiner said.
Of the $348 million in sales, $153 million came from FIA premiums. This was a decrease from $190 million in the second quarter, as insurers fought to sell FIAs and other annuities through banks and broker/dealers, he said.
At the end of June, Eagle Life had 419 pending applications. Pending applications peaked at 769 in early August before finishing September with 386 pending applications. As of Oct. 31, pending applications stood at 305, Grensteiner reported.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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