Transamerica to halt sales of VAs with guarantees, fixed annuities

Transamerica is stopping sales of fixed annuities and variable annuities with benefit riders, as the company seeks to exit from those markets entirely, Aegon executives said during a presentation Thursday.

The decision follows years of low interest rates that have challenged insurers — and rates in the current environment have made competitive guarantees even more difficult to provide. Last month, Prudential Financial similarly announced that it will no longer sell VAs with guaranteed benefits and would seek to reinsure its existing block of business or take other actions to hedge the risks associated with it.

Transamerica is also exploring options for what will be its legacy annuities business, executives said during parent firm Aegon’s investor presentation. The company is also halting sales of its standalone long-term care insurance.

“The reality is that Transamerica’s market position has significantly eroded over the last decade. We will exit from several product lines,” Aegon Chief Transformation Officer Duncan Russell said. “We will move out of traditional interest rate sensitive living and death benefit riders on variable annuities and treat them as a financial asset. We will also close the new business for individual health and fixed index annuities. In these products, we have concluded that Transamerica will not be a long-term winner.”

The company is not getting out of the VA business altogether, he noted. It is instead focusing on investment-only and accumulation-focused products that do not come with optional living or death benefit riders.

Transamerica was the ninth-largest VA issuer by total assets as of the end of the third quarter, at nearly $76 billion, data from Morningstar show.

Other insurers could seek to get out of the VA-with-benefits business, but the product type is far from going away, said Tamiko Toland, head of annuity research at Cannex.

“It’s very difficult to manage these books of business. They were not priced for rates to be this low,” Toland said. “It’s a bad time, and the expectation is that these very low interest rates are going to be endemic to product management for some time. This is not just a blip — it’s going to be a process for them for rates to come back up again.”

The decision to keep selling such products depends on how companies manage their product lines, the diversity of their business, the risks they assume and how they balance that across products, Toland said.

“The need for income guarantees in retirement is there regardless of what’s happening to interest rates,” she said. “Insurance companies are going to be very creative in how they put them together and collaborate.”

Aegon has different plans for managing the long-term care and VA legacy blocks, CEO Lard Friese said during the presentation.

“These closed businesses will be managed by a dedicated financial assets team to optimize financial outcomes through active operational risk and capital management,” Friese said. “While we will continue our successful management of the long-term care book, the team that will manage our financial assets will look for possible solutions to offload the risk of the annuity book. We will only do so once we have completed the review regarding our hedging of this book.”

Additionally, Transamerica's retirement-plan business will focus more on small and mid-size plans in the coming year, with the ability to provide pooled employer plans being a big opportunity, Russell said. Within those plans, the company could benefit by selling its own investment products and managed account services, he said.

“It’s a competitive market, and we’d like to reverse the margin compression we’ve seen in the past,” he said.

VA SALES DOWN

Through the third quarter, year-to-date VA sales were $70.3 billion, down by 11% from the $75.1 billion seen during the first three quarters of 2019, according to data from Limra’s Secure Retirement Institute. But excluding registered index linked, or buffered, annuities, sales were down 20%. The latter group of products, which the industry has rebranded as RILAs, have been selling well, with new sales up 29% this year, according to Limra.

Meanwhile, total fixed annuities sales fell by about 3% during the first three quarters of 2020, compared with the same timeframe in 2019, with figures down by roughly 30% or more for indexed, deferred income, fixed immediate and structured settlement products, according to Limra’s report. Meanwhile, fixed-rate deferred annuities saw sales increase by 60%.

Transamerica was the 19th biggest seller of all types of annuities during the first three quarters, at more than $2.5 billion, Limra reported. Nearly $2.1 billion of those sales were in variable annuities, with the firm being 13^th in that category.

Prudential sold more than $5 billion in total annuity products during the first three quarters, being the 15th biggest seller. However, more than $3.9 billion of that was in VAs, and the firm was the seventh leading seller of those products, according to Limra.

Buffered annuities will increasingly factor into sales in the future, CEO Charles Lowrey said during an earnings presentation last month.

“In annuities, we are focusing on our efforts on delivering protected-outcome solutions like our FlexGuard product,” Lowrey said. “And we’re discontinuing all sales of our traditional variable annuities with guaranteed living benefits. We will also explore strategic opportunities for blocks of business, including reinsurance and other transactions.”