US Life Insurance and Annuity Market: Report Rising interest rates provide headwinds

Some of the same US entities that generated the highest growth rates in life, annuity, and accident and health direct premiums and benefits in 2021 may be poised to generate above-market expansion rates again in 2022.

The list of the fastest-growing US life insurers in 2021, determined by various criteria determined by S&P Global Market Intelligence, was dominated by groups and standalone entities focused on annuity businesses as a retreat in sales of certain types of annuities amid market volatility, distributor disruptions, and ultra-low interest rates that took hold after the pandemic was declared in March 2020 made for easy comparisons. Although premium volume in the business line jumped 14.8% in 2021, including first-year premiums, single premiums and renewals, the growth rate was only 9% above the pre-pandemic 2019 result. Although 2022 got off to a relatively slow start, the multiple hikes in the federal funds rate from March to July since then have helped sales jump to record levels.

In developing our forecast for industry-wide growth in ordinary individual annuity premiums and fees of nearly 8.9% in 2022, we expect more of the same as particularly favorable market conditions for annuity products that offer consumers attractive interest rates and principal protection, are poised to generate particularly strong growth. Our projected growth rate for the annuity business generally compares quite favorably to other lines.

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Annuity writers excel

Investors Heritage Life Insurance Co. ranked as the sector’s fastest growing company in 2021 based on growth well in excess of 500% in both total direct premiums and fees, first-year direct premiums and unit premiums, a measure of new business production. Annuity-focused entities, including Investors Heritage, grabbed seven of the top 10 positions in each of the two categories.

Our ranking includes US life insurance groups and top-tier life insurance entities that meet the following criteria: 1) 2020 direct premiums and rewards, net premiums and rewards, and direct first-year and single premiums of at least $1 million per number; 2) growth of direct bonuses and remuneration for 2021 of at least 25%; 3) 2021 direct premium growth for the first year and single premiums of at least 25%; and 4) 2021 growth of at least 15% in net premiums and remuneration. The criteria are intended to ensure that the ranking includes entities that create new businesses and retain at least some of their production.

Frankfort, Kentucky-based Investors Heritage cited the April 2021 introduction of its fixed indexed annuity product and, to a lesser extent, sales of multi-year guaranteed annuities and pre-requisite products for its outsized growth. The rapid growth continued in the first quarter of 2022, as the company’s premiums and fees increased to $125.6 million from $37.9 million in the prior period.

Comparisons become much more challenging for the company through the balance of 2022, but market dynamics appear significantly more favorable to sales growth for various types of both deferred and indexed fixed rate annuities. In addition, Investors Heritage recently introduced a new fixed indexed annuity product that offers fully guaranteed participation rates in indexed accounts during the chargeback period and ensures that policyholders will not lose account value when market performance is negative.

Investors Heritage’s first-year direct premiums and unit premiums collapsed 76.4% in 2020 as the company cut lending rates at the start of the pandemic in light of economic uncertainty. Its 2021 volumes are still up 73.8% from 2019.

The pattern of a large increase in 2021 after a significant decrease in 2020 in first-year and single premiums was not unique among our fastest-growing insurers, although not to the extremes shown by Investors Heritage. The third- and fourth-fastest growing insurers in first-year direct premiums and single premiums posted double-digit declines in 2020, followed by double-digit increases in 2021.

American National Group Inc. experienced a surge in equity-indexed deferred annuity premiums and deposits received, with the 2021 total in this category exceeding the combined amount for 2019 and 2020. Meanwhile, fixed premiums and deposits for deferred annuities approached the company’s 2019 volume .

Fixed annuity author Liberty Bankers Life Insurance Co. attributed its momentum in 2021 to a combination of improved lending rates and an upgrade in its financial strength rating. Liberty Bankers Life group also benefited from higher volumes in its relatively smaller animal and healthcare businesses.

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Strong sales in volatile times

Statutory data for the second quarter is not yet available, but we would expect a wide variance in the growth rates annuity providers achieved based largely on the types of products they emphasize.

Survey data released by LIMRA’s Secure Retirement Institute shows that US annuity sales increased 9% in the first half of 2022 and 14% in the second quarter as exceptional growth in deferred fixed-rate products percent more than offset the significant weakness in traditional variable annuity production. Sales of deferred fixed rate annuities rose 44% in the first half of 2022 and 76% in the second quarter. Sales of fixed indexed annuities rose 20% and 19% in the respective periods.

Public company earnings reports seem to reflect these trends.

Lincoln National Corp., a major writer of variable annuities, reported a 15.8 percent drop in total annuity sales in the second quarter. At the other end of the spectrum, Athene Holding Ltd. posted “record” quarterly flows and a doubling of applications in its retail channel focused on fixed indexed annuities in the second quarter, according to parent company Apollo Global Management Inc.’s earnings report.

The top five sellers of deferred fixed-rate annuities in the first quarter of 2022, according to the Secure Retirement Institute, are the group led by New York Life Insurance Co., the U.S. life insurance units of American International Group Inc., the group led by Massachusetts Mutual Life Insurance Co., USAA Life Insurance Co. and Western & Southern Financial Group Inc. Global Atlantic Financial Group Ltd., which ranked sixth, benefited from what KKR & Co.’s CFO said. Inc Robert Lewin described during Aug 2. conference call as a “pretty flexible environment” for annuity sales, with about $6 billion in total flows.

In the fixed indexed annuity business, the top five sellers in the first quarter of 2022, according to the Secure Retirement Index, were Athene’s US life insurance units, followed by Allianz Life Insurance Co. of North America, AIG, Sammons Enterprises Inc. ESOT life companies and Fidelity & Guaranty Life Insurance Co. (In particular, F&G Life’s indexed annuity sales fell slightly year over year in the second quarter of 2022 to $1.11 billion from $1.14 billion, according to parent Fidelity National Financial Inc., but its MYGA production doubled to $1.09 billion.)

In 2021, Athene saw growth in direct writings in both the individual and group annuity businesses, but the latter was a result of pension risk transfer proposals. Its U.S. life insurance subsidiaries rank behind only Investors Heritage on our 2021 list of fastest-growing entities based on total direct premiums and considerations, and rank 7th in direct premium growth for the first year and single premiums.

Total annuity sales are up 16% in 2021, according to the Secure Retirement Institute. In contrast to the trend in the second quarter of 2022, traditional variable annuities and registered index-linked annuities led the way against vastly different macroeconomic conditions and equity market backdrops.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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