J.P. 摩根-美股-保险行业-可变年金市场趋势：强劲的市场短期顺风但长期观点谨慎-2019.12.3-30页.pdf

North America Equity Research03 December 2019 Variable Annuity Market TrendsStrong Market a Near-Term Tailwind,but Long-Term View CautiousInsurance-LifeJimmy S.Bhullar,CFA AC(1-212)622-Bloomberg JPMA BHULLAR Pablo S.Singzon(1-212)622-J.P.Morgan Securities LLCSee page 26 for analyst certification and important disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment We maintain a cautious stance on the variable annuity business.The lag impact of the strong equity market and disciplined price competition are key positives.Still,we project sales and net flows in the business to be weak and remain wary of the tail risk in living benefit guarantees.Our models project VA sales to rise 7%in 4Q19 and be flat in 2019.Sales rose 5.4%in 3Q19 to$23.8 billion,better than our$22.6 billion estimate,as weak demand for traditional VAs was offset by growth in buffer annuities.Compared with 2Q19,Allianz and NY Life gained the most share,while TIAA and EQH lost the most.Within our coverage,we expect LNC and PRU to gain share in the near term.VA sales have droppedin 6 of the past 7 years,and are likely to be roughly flat in 2019 and rise modestly in 2020.Despite an expected recovery,we expect sales to remain well below historical levels and project VA net flows to be negative in 2020.Our 2020 sales forecast is 38%below the level in 2011.In our view,variable annuities complexity,high fees,and liquidity restrictions will preclude them from capturing a higher proportion of retirement assets.We expect VA results in 4Q19 to be marked by healthy fee income and an improvement in NAR.The S&P index is up 6%thus far in 4Q19 and is 2%higher on an average daily balance basis(which drives fee income),both of which bode well for fees in 4Q19 and in future periods.Also,the strong equity market and the rise in interest rates should lower net amounts at risk(NAR)and hedging costs.Still rate assumptions in insurers balance sheets are optimistic relative to the forward yield curve.Hence,barring a steady rise in rates,we anticipate additional charges in VA businesses over time.Tail risk from living benefit guarantees is a major long-term risk.Newer VA products are more rationally priced than older blocks,but many insurers have large in-force books with significant exposure to living benefits.Hence,even modest hedge breakage or shifts in policyholder behavior could result in significant charges.Furthermore,severe market corrections,even if temporary,could hurt insurers earnings and capital precisely when their ratings are stressed and their access to capital markets is limited.Investigations into the 403(b)market pose a risk for VA insurers.We believe that AIG and EQH have the most exposure given the size of their group retirement/403(b)franchises.LNC,PFG,and VOYA are also exposed,but to a lesser extent(403b plans are less than 10%of their retirement AUM).New stat capital and reserving rules will standardize industry practices,but the impact on capital for most firms is likely to be negative.The rules become effective 1/1/20,with the option for early adoption.Our outlook for the life insurance sector remains negative.Ongoing share buybacks and downbeat investor sentiment are positives.However,the drop in interest rates is a key concern and implies that most life insurers BVs are overstated.GL and LNC are our top picks and we are negative on BHF.3Q19 Variable Annuity ResultsIndustry Sales3Q19:$24 bil.(+5%vs 3Q18)4Q19E:$24 bil.(+7%vs 3Q18)2020E:$95 bil.(+4%vs.19)Company Sales ResultsMarket share gainers(vs.2Q19):Allianz,NY Life,AIG,Nationwide,AmeripriseMarket share losers(vs.2Q19):TIAA,EQH,Jackson National,Northwestern Mutual,AegonCompany Net FlowsPositive:Allianz and NY LifeNegative:Jackson National,EQH,LNC,PRU,TIAA,AIG,Nationwide,AMPMajor Market TrendsDisciplined price competitionGrowing share of indexed VAsHealthy demand for living benefitsConcentrated market shareShift to 3rd party distributionPlease visit our Bloomberg page onJPMA Bhullar 2North America Equity Research03 December 2019Jimmy S.Bhullar,CFA(1-212)622- Table of ContentsVariable Annuity Market Trends.3Outlook for VA Sales,Flows,and AUM.4Outlook for Earnings and Returns.6Price Competition to Stay Rational.8Tail Risk Posed by Living Benefits a Concern.10Market Share to Stay Concentrated.12NAIC Changes Modestly Negative Overall.13Investigation of 403(b)Market a Negative.15Regulatory Calm.for Now.163Q19 Company Highlights.18Index of TablesTable 1:3Q19 Variable Annuity Sales and Market Share.3Table 2:Historical DAC(Charges)/Releases.6Table 3:Variable Annuity Hedge Breakage by Company.7Table 4:Insurers Have Raised Prices and Lowered Guarantee Levels.8Table 5:Demand for GMWBs Has Declined but Remains Healthy Overall.9Table 6:Most Popular GMWB/Lifetime Income Offerings.10Table 7:Life Insurers Exposure to VA Death and Living Benefits.12Table 8:Summary of Final VA Capital Reform Recommendations.14Table 9:Capital Less Conservative than CTE 98 for Some.14Table 10:VA Sales into Qualified Plans.17Table 11:A Large Share of Investment-Only VAs Are Sold into Qualified Plans.17Table 12:Top Market Share Gainers and Losers(vs.2Q19).18Table 13:Percentage of Total Earnings from Variable Annuities.18Table 14:Variable Annuity Industry Sales Quarterly.22Table 15:Variable Annuity Industry Sales Annual.23Table 16:Variable Annuity Top Selling Contracts Quarterly.24Table 17:Variable Annuity Industry Assets.25Index of FiguresFigure 1:VA Industry New Sales Annual.4Figure 2:VA Industry New Sales Quarterly.4Figure 3:Flows Have Been Hurt by Poor Sales and the Run-Off of Legacy Books.5Figure 4:Hedging Costs Have Risen Thus Far in 2019.7Figure 5:VA Sales by Distribution 2000.13Figure 6:VA Sales by Distribution 3Q19.133North America Equity Research03 December 2019Jimmy S.Bhullar,CFA(1-212)622- Variable Annuity Market TrendsOur models project variable annuity sales to rise 7%in 4Q19 and be flat in 2019.VA sales have steadily drifted lower over time,declining every year from 2011 to 2017(followed by a modest recovery in 2018).For 2020,we are assuming 4%growth,helped primarily by easy comps as well as by growth in buffer annuities(registered index annuities with variable payouts).Buffer annuities were the best selling products for both LNC and EQH.We attribute the steady decline in VA industry sales from 2011 to 2017 to several factors,including price hikes,benefit reductions,lower churning,and uncertainty related to the DOL rule.Sales rose modestly in 2018,helped by the rescission of the DOL fiduciary rule and product enhancements from a few companies.However,we expect new business volumes to remain challenging as the pullback in interest rates in 2019 has caused insurers to reduce benefit levels.Most insurers have increased prices and de-risked their product offerings in the past decade,making newer vintages less risky.Still,tail risk in legacy policies remains a key concern.Variable annuities have historically produced poor risk-adjusted returns over a full market cycle,and we feel that insurers mid-teens ROE targets for the product are too optimistic.Also,companies do not reflect hedging costs in operating EPS and exclude periodic balance sheet charges from“run-rate”earnings and returns,effectively overstating the economic returns of VA blocks.The pro-cyclical nature of VAs is another major risk as sales normally peak after strong market performance(when prospective returns are the lowest)and decline after pullbacks(when returns are highest).Required capital also rises during market pullbacks,precisely when companies cost of equity is high and their access to capital markets is limited.In 3Q19,VA sales rose 5%to$24 billion,better than our$23 billion estimate.Allianz and NY Life gained the most share from 2Q19,while TIAA and EQH lost the most.Jackson continues to be the leading provider with a 16%share.Within our coverage,we expect LNC and PRU to gain share in the next few quarters.Table 1:3Q19 Variable Annuity Sales and Market Share$in millions3Q182Q193Q193Q182Q193Q19Seq.RankRankRankCompany3Q182Q193Q19Mkt.Sh.Mkt.Sh.Mkt.Sh.bp chg.111Jackson National Life4,097.23,786.63,766.818.1%16.3%15.8%(51)322AXA Financial2,464.52,807.42,657.810.9%12.1%11.1%(94)443Lincoln National2,248.02,433.82,508.49.9%10.5%10.5%4554Prudential Financial2,106.92,333.02,333.19.3%10.0%9.8%(26)235TIAA-CREF2,468.02,462.32,299.010.9%10.6%9.6%(96)666AIG SunAmerica/VALIC1,742.41,446.51,625.27.7%6.2%6.8%5913117Allianz Life566.8825.11,325.42.5%3.6%5.6%200778Nationwide Financial1,133.51,188.81,284.75.0%5.1%5.4%2711129New York Life663.8821.0990.52.9%3.5%4.2%628910Ameriprise Financial/IDS Life939.9899.1964.14.2%3.9%4.0%17Total Industry22,620.123,221.423,847.8100.0%100.0%100.0%Source:The VARDS Report and J.P.Morgan estimates.Note:Companies in bold are those under J.P.Morgan life insurance research coverage.Please refer to Page 18 for a detailed discussion of results and our outlook for specific companies variable annuity businesses.4North America Equity Research03 December 2019Jimmy S.Bhullar,CFA(1-212)622- Outlook for VA Sales,Flows,and AUMWe forecast VAs sales to rise 7%4Q19 and 4%in 2020.Variable annuity sales have historically been highly correlated to the equity market,with a slight lag.However,this relationship broke down after the financial crisis,particularly from 2012 to 2017,with sales declining steadily despite a generally strong equity market.Many insurers have blamed weak sales on external factors such as uncertainty from the DOL rule.In our view,however,price increases,benefit reductions,the pullback of certain competitors,and lower churning activity have been more significant drivers of the decline.Variable annuity sales reached their lowest level over the past two decades in 2017,before stabilizing somewhat in 2018(+1%growth)due to product enhancements at leading insurers(LNC and PRU),easy comps,and the termination of the DOL rule.Sales are trending lower thus far in 2019 as well,partly due to benefit reductions by insurers to reflect low interest rates.Most of the growth reported by several insurers(Allianz,LNC,PRU,BHF,EQH)are from buffer annuity products(indexed VAs),not traditional VAs.We believe that the complexity,high fees,and liquidity restrictions of VAs will preclude them from capturing a meaningful proportion of overall retirement assets in the long run.Figure 1:VA Industry New Sales AnnualSource:The VARDS Report and J.P.Morgan estimates.Figure 2:VA Industry New Sales QuarterlySource:The VARDS Report and J.P.Morgan estimates.In our view,variable annuity assets will rise 2%in 4Q19 and 9%in 2019,helped by the strong equity market.For 2020,we forecast assets to increase 3%.Industry AUM declined 1%in 3Q19 as the healthy equity market was more than offset by negative flows.At 9/30/19,72%of VA assets were allocated to equity and balanced funds,27%to fixed income,and 1%to money market funds.Following the financial crisis,most insurers began imposing tighter asset allocation limits to manage equity market exposure in variable annuity accounts.In addition,firms began selling products that mandated fixed income allocations or offered primarily fixed income funds(e.g.,Prudentials PDI product).Overall,we expect these 05001,0001,5002,0002,5003,000$0$40$80$120$160$200200420062008201020122014201620182020E(S&P 500)(Sales,$billions)Industry New Sales($billions)S&P 500 Year-End Close05001,0001,5002,0002,5003,0003,500$0$5$10$15$20$25$30$35$404Q/142Q/154Q/152Q/164Q/162Q/174Q/172Q/184Q/182Q/194Q/19E(S&P 500)(Sales,$billions)Industry New Sales($billions)S&P 500 Monthly Close5North America Equity Research03 December 2019Jimmy S.Bhullar,CFA(1-212)622- changes to result in lower equity allocations compared to historical peaks,which should reduce volatility in VA assets.However,a drawback of this approach is that higher fixed income allocations will make it difficult for AUM to appreciate at guaranteed levels,especially if interest rates stay depressed.Furthermore,insurers earn lower fees on assets in fixed income funds than on equity or balanced funds.Among companies we cover,AIGs variable annuity book has the highest allocation to the general account(fixed bucket)option,while PFG has the lowest.We project VA industry net flows to stay poor.Many insurers are running off their legacy books and others have stopped selling variable annuities altogether,driving steady outflows in the business.In 2018,all major VA sellers reported negative net flows,with the exception of Jackson National(which reported modestly positive flows).In 3Q19,none of the major VA companies,except for Allianz(ranked#7)and New York Life(ranked#9)generated inflows.Our models project the overall VA market to stay in outflow mode for the next few years due to a lower base of sales and sizable withdrawals/utilization on in-force blocks.Sales in the near term are likely to be suppressed by recent benefit reductions in response to lower interest rates.Meanwhile,we attribute the drop in industry sales over the past several yearspartly to less churning,which inflates individual company sales but is not additive to overall industry growth.In our opinion,churning has declined because of the combined impact of older contracts with in-the-money guarantees(customers forfeit guaranteed benefits if they elect early withdrawals or cancel a policy)and newer contracts offering less generous benefits and higher fees.Based on our calculations,net flows have averaged only 5%of sales since 2000,implying that for each$100 of new sales,only$5 has represented new money entering the market(withdrawals and transfers constitute the other$95).Since churning inflates sales for individual companies without adding to industry assets,VA AUM growth has lagged the pace implied by sales and market performance.Brokers had historically driven churn by moving client AUM from older contracts into newer plans on a tax-free basis after the expiration of surrender charge periods(seven years on B-shares).These transactions generate significant commissions and were justified by citing the wider array of guarantees and investment choices available on newer policies.Figure 3:Flows Have Been Hurt by Poor Sales and the Run-Off of Legacy BooksNet flows divided by sales for the overall VA marketSource:VARDS and J.P.Morgan estimates.Note:2019 data is through 3Q19.-120.0%-100.0%-80.0%-60.0%-40.0%-20.0%0.0%20.0%40.0%60.0%80.0%100.0%200320052007200920112013201520172019Net Flows as a%of Deposits6North America Equity Research03 December 2019Jimmy S.Bhullar,CFA(1-212)622- Outlook for Earnings and ReturnsIn our view,VA earnings will benefit from healthy fee income.On an average daily balance basis(which drives fees),the S&P 500 Index is 2%higher in 4Q19 than 3Q19.On a point-to-point basis,the eq