5 Reasons Annuity Surrenders Can Be a Good Thing
What You Need to Know
Surrender charges make annuity business sticky.
Fees from surrenders can help issuer earnings.
Surrenders resulting from allocation decisions may fuel new annuity sales.
F&G Annuities & Life works hard to bring in new life and annuity business — and it’s fine with some of the policies and contracts going away.
Chris Blunt, the company’s chief executive officer, and Wendy Young, the chief financial officer, gave securities analysts a tutorial on annuity surrenders Tuesday during a conference call.
In theory, ideal annuity owners might be wedded to their contracts for life.
In reality, when conditions change, “it’s actually smart for the customer to move into a new policy, to get better terms,” Blunt said. “Agents are obviously incented to do that as well. So, they’re doing well. And, actually, for us, it’s not a bad thing at all. We’re capturing surrender charge income.”
What it means: Life and annuity insurers can do well both when business is coming in and, at least in some circumstances, when business is going out.
For clients, one moral might be to look hard at any life insurance policies or annuity contracts they’re thinking of surrendering. If surrenders would be good for the issuers, maybe clients and professionals should look hard to see whether, after netting out all costs, surrenders are the best option for the clients.
The numbers: F&G held the analyst call to go over second-quarter results.
The Des Moines, Iowa-based life and annuity issuer did well during the quarter: It reported $198 million in net income on $1.2 billion in revenue and $52 billion in assets under management, up from $130 million in net income on $1.2 billion in gross sales in the year-earlier quarter.
Total gross sales increased to $4.4 billion, from $3 billion.
Annuity surrenders increased to $1.5 billion on $33 billion in balances, from $880 million on $31 billion in balances.
Here are five things Blunt and Young said about annuity surrenders, during the call.
