How Valuable Is Annuity Biz to Carriers?

[Allen Trent]

I have recently (past 2-3 years) seen major corporations selling off their pension obligations to carriers. This makes me wonder, how are blocks of annuity biz valued? If Carrier A has 1billion of annuity premiums let's just say, how would this be valued by Carrier B? Obviously valuations are based off discounted future cash flows so the question is, roughly how profitable is annuity biz?

Allstate sold their entire Annuity & life business away to a hedge fund. $34B in assets sold for less than $2B. I can't remember which, but they were paid for 1 of the 2, but gave the other one away just to get the assets & liabilities off their books.

[EXTERNAL LINK] - Allstate seals $4 billion sale of life and annuity businesses.

 

[goillini52]

Who are you and what did you do with Goillini?

He said he couldn't open the article, so I copied and pasted it for him. Those are Sheryl Moore's words, not mine.

 

[Allen Trent]

How would I go about finding an answer to this question? Essentially what I am trying to understand is, what is the lifetime value of annuity business to a carrier? If they are willing to pay out up to 10% in total commissions in year 1 to IMO's and agents, then the LTV is clearly very high.

Most annuity sales are not generating anywhere near 10% commissions these days. Sure, some are, but the average of most MYGA is 2-4%, index with longer surrender charges & riders/fees pay higher commission. Surrender charge protects carrier on the commission aspect & many back out commission if death in first few years as added protection on commissions. But, overall commission rates have plummeted

 

[bill3173]

Most annuity sales are not generating anywhere near 10% commissions these days.

He may be referring to total comm payout on EIA with long surrender charges. I know there are some that pay 8-8.5 to the agent, so a total payout of 10 is likely; to me it's easy to see how they could make money on a 14 year surrender, if you look at the scheduled charges. Add to that, that's all some agents sell. Unfortunately, that's not me, I'm too chicken shit to saddle anyone with a 14 year surrender.

 

[DHK]

Unfortunately, that's not me, I'm too chicken shit to saddle anyone with a 14 year surrender.

Me too. There has to be a really good reason to go beyond 10 years for me. I'm quite satisfied with my 6-7% payouts (depending on the FIA contract).

 

[walthamny]

The only time I have seen 14 year make sense is on death riders. If you have a 32 year old with a terminal illness, 14 year surrender usually gives the best death benefit. It beats Guaranteed issue whole life as the death benefit kicks in right away.

 

[PrivClientSG]

How would I go about finding an answer to this question? Essentially what I am trying to understand is, what is the lifetime value of annuity business to a carrier? If they are willing to pay out up to 10% in total commissions in year 1 to IMO's and agents, then the LTV is clearly very high.

You won't find an answer. If a carrier was going to sell their block of business, any potential buyer would, eventually, have a formal valuation done. That process is not simple at all, nor is it linear formulaic. I remember reading an article about a carrier who sold their block of business, and I remember the article mentioned that Willamette did the valuation. Call Curt Kimball (if he's still there). I know Deloitte has done this as well. Many years ago Larry Berkey used to run their National Valuation Group (based out of Chicago), and he personally specialized in large financial institutions' and their speciality assets. Good luck!