How do i get life insurance. Insurers are selling off old annuity business what advisers need to know

Insurance companies have been selling old blocks of annuity business at a rapid clip, and it's likely the quick pace of transactions will continue at least through this year and possibly beyond. This could ultimately be bad news for policyholders and, by extension, their financial advisers. Annuity.

Deals involving variable annuities have "dominated the transaction roster for the first time," according to a Moody's Investor Services report published Wednesday that examined insurance transactions since the beginning of 2017.

"There's a lot of activity out there," said Laura Bazer, senior credit officer at Moody's.

Moody's estimates insurers currently have over $420 billion of annuity, life insurance, long-term care and other liabilities on their books publicly designated as "legacy" or "runoff," which means it's a prime candidate for a transaction, Ms. Bazer said.

Companies that have done so for various insurance business include AIG, Allstate Life, Ameriprise, Brighthouse, CNO, Genworth, John Hancock, Unum and Voya Financial according to Moody's.

Old blocks of insurance business, especially those sold prior to the financial crisis that were mis-priced or offered generous benefits to policyholders, have been a drag on the balance sheets of many insurers. Some insurers have sold their blocks, entered into reinsurance agreements or, like MetLife Inc. and AXA S.A., completed spin-offs or initial public offerings.

Around $270 billion of life, annuity and group benefits business has changed hands since the beginning of last year, according to Moody's.

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Transactions, though — whether a sale, IPO or otherwise — pose inherent risks to policyholders.

"Policyholders may end up someplace they didn't start out and may or may not like it," said Ms. Bazer.

While the current company housing an insurance contract may have a strong credit rating — which signals a high likelihood the company will be able to pay claims in the future — the buyer may not have as solid a rating. Credit rating agencies could lower the rating of a stand-alone company following an IPO or spin-off, which may no longer benefit from the shelter of a larger, diversified company.

Buyers, for example, could also increase contract fees to the maximum stipulated by the specific policy.

Further, Ms. Bazer said, an international buyer may have lower reserve and capital requirements than a U.S. company.

But the operating environment has been "more attractive" for both buyers and sellers of late, Ms. Bazer said. The stock market has surged, helping insurers better cover their variable-annuity policy guarantees. Interest rates, while still relatively low, have increased 1 percentage point year-over-year, which helps all types of insurance products. Strong capital markets also are helping buyers raise funds, said Ms. Bazer, who authored the Moody's report.

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"That all favors continuing transactions certainly for the remainder of the year," she said. The run could extend beyond this year if the market conditions remain favorable, she said.

Voya Financial Inc. and Hartford Financial Services Group, for example, announced two big deals at the end of 2017. Hartford is selling its Talcott Resolution unit, which has $41 billion in variable annuities, to multiple investors. Voya also is offloading more than $50 billion of annuities — including $35 billion in VAs — to three private-equity firms. Both deals are expected to close this year.

It's been roughly five years since the last big transaction involving old VA business. Sun Life Financial Inc. sold its U.S. annuity business to the owners of Guggenheim Partners in 2013, offloading legacy VA business in the process, Ms. Bazer said.

However, variable annuities aren't the only products being considered.

This year, HRG Group Inc., a holding company, sold $24 billion in indexed annuities and life insurance to FGL Holdings (formerly CF Corp.), according to Moody's.

American Equity Life Insurance Co., a fixed annuity provider, confirmed Wednesday it is in preliminary discussions regarding a potential sale of the company, though it stressed nothing is definitive. American Equity was the fourth-biggest provider of indexed annuities in 2017, selling $4 billion worth.

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General Electric Co. is also shopping around its legacy long-term-care-insurance business, according to a Reuters report published May 22.

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