Environment right for VA, pension risk transfer deals in 2020, but LTC blocks might be left in the wings

More risk transfer deals are in the works for 2020, according to insurance and retirement industry experts.

Analysts see variable annuity block risk transfer transactions this year in part because of new reserve and capital standards created by state  regulators under the auspices of  the National Association of Insurance Commissioners.

Over the past few years the NAIC has developed a variable annuity reserving and life risk-base capital framework to make reserving more transparent and truer to the risk involved. The beginning of the year not only ushered in the new standards but an expectation that they would standardize interest rate reserve assumptions and policyholder actions.

These “changes put buyers and sellers on a more level playing field and as a result will lead to at least 1-2 transactions in 2020,” wrote Evercore ISI equity analysts led by Thomas Gallagher in a research report Jan. 7.

Evercore’s team identified AXA Equitable Holdings, Brighthouse Financial and Prudential plc (London-based corporate owner of  U.S. variable annuity subsidiary Jackson National Life Insurance Co.) as candidates for suitors for some of their legacy or earnings-pressured variable annuity businesses. 

The Voya Financial Inc. transaction with Resolution Life Group Holdings, announced Dec. 18th, perhaps provides a proxy template for these transactions.

In this deal, Voya is divesting its individual life and legacy fixed and variable annuities business and pension risk transfer liabilities so it can focus on its high-growth, high-return businesses of retirement, investment management and employee benefits, it said. These require less capital while the move also sheds some of the interest rate and mortality risk associated with the life and annuity business. Voya gets $1.5 billion of deployable capital in the deal from Resolution Life and $200 million from a previous reserve financing deal in the fourth quarter. 

According to the Secure Retirement Institute (formerly LIMRA SRI) in a Jan. 8 column,  What’s Next for the Pension Risk Transfer Market, these transfer deals will continue to grow, with the year-end 2019 tally of new contracts expected to be over 500 by the end of 2019. That amounts to  sales in the $20-$25 billion range compared with   single-premium pension buyout sales of $26 billion in 2018.  “All evidence indicates that the future of the pension risk transfer market will be positive, and SRI fully expects this market will continue to grow in 2020 and beyond,” the researchers said.

While discussion of divestments of long term care insurance blocks appears to have slowed, some hope that companies that have been interested in variable annuity blocks could come calling to help offload some legacy LTC blocks.  

LTC insurance blocks are receiving higher premium rate increases from state regulators, as analysts and companies themselves have noted, especially in the wake of a unified NAIC effort task force to look at LTC business vulnerabilities through a national lease and coordinate state efforts into tackling the problem. 

“We see a healthy level of rate increases offsetting a sizable part of the morbidity deterioration for most,” Gallagher’s research note stated in reference to the LTC business.  However, one company formerly interested in LTC said it was not scouting such deals.

Annuity-rich retirement savings business segments may get a boost from the passage and recent enactment  of the SECURE Act, which seeks to expand retirement savings vehicles for workers at smaller businesses and in wider age ranges.

However, consultants at Deloitte cautioned in their 2020 insurance outlook that the New York Department of Financial Services best interest standard could hamper individual annuity sales segments.

NY standards have influence beyond the Empire State in insurance regulation and other jurisdictions that seek to toughen up their sales standards for annuityawd life products as well after the fall of the U.S. Labor Department’s now-vacated fiduciary rule. For example, Massachusetts Securities Division held a hearing Jan.7 on its proposal to bolster the guardrails of financial advice.

Wayne Chopus, president and CEO of the Insured Retirement Institute, told state regulators during the hearing to wait for the national standard from the Securities and Exchange Commission, known as Regulation Best Interest, to take effect and then proceed. Reg BI takes effect July 1, 2020. Chopus said the Massachusetts proposal c”limit consumers’ access to valuable financial planning services and products,” according to the trade association.


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