Great American Parent Explains Annuity Unit to Wall Street
June 21, 2017 by Allison Bell
Executives from American Financial Group, the parent of Great American Insurance Group, recently briefed investors and securities analysts on the state of its operations and on its prospects for future growth.
One thing the executives did was to sell Wall Street players, at the Morgan Stanley Financials Conference in New York, on the idea that offering annuities is still a reasonable thing to do.
Here are three things the American Financial Group executives told Wall Street, based on the presentation slide deck.
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1. The company’s own annuities unit is doing well.
The unit reported record earnings, premiums and assets in 2016; it’s a leader in its channels; and it has undergone significant transformation since 2009, the company said.
Pretax operating earnings increased to $368 million in 2016, from $127 million in 2009, and fixed and indexed annuity premium revenue increased to $4.4 billion, from $1.3 billion, over that same period.
The unit faced no rating agency downgrades during the Great Recession, and it has received upgrades since the end of the recession, the company said.
2. The company keeps its simple.
Some agents and advisors may wish Great American offered variable annuities or some other type of additional products.
In its slide deck, the company assured investors that it focuses on its core competency of fixed annuities and indexed annuities, and that it stays away from lines of business in which it lacks critical mass or a competitive advantage.
3. The company has plans for dealing with low interest rates, rising interest rates and the Labor Department’s fiduciary rule.
The company noted that it has solid defenses against changing interest rates.
It can lower its crediting rates considerably if interest rates fall significantly, and it has low upfront costs to recover, because its upfront commissions are lower than those of competitors.
The company said it can also protect itself if interest soars, because 88% of in-force annuities have some kind of surrender penalty, and 66% have a surrender charge of 5% or higher.
In addition, about 40% of new sales involved some form of trail or multi-year commission, the company said. The company is hoping agents will have a financial incentive to encourage annuity contract persistency.
The Labor Department imposed new fiduciary rule standards June 9 and expects more standards to take effect Jan. 1.
Insurance-only agents can still sell indexed annuities, at least for now, the company said.
Although rule-related adjustments “will temporarily impact annuity premiums, management does not believe the new rule will have a material impact on [American Financial Group’s] results of operations,” the company said.
