Insurers May Be in for More Misery (Update)

Since the S&P 500 is down so far this year, insurers will likely have to pay EIA policy holders from general account yields to satisfy the minimum guaranteed contract values. The insurers are required by state regulators to maintain capital in safer, fixed income investments like bonds to back the products. Conversely, regulators allow issuers of variable annuities, which have caused trouble for insurers like The Hartford Financial Services Group (HIG Quote) and AIG (AIG Quote), to back their products with less capital, as the products are designed to pass more risk onto the policy holders.

Several years of declines in the stock market, as some are expecting, could force the insurers offering EIAs to draw down on general account yields longer than they might have expected, pressuring the companies.

Top Five Equity Index Annuity Providers

Aviva (AIVAF Quote) is the largest issuer of equity indexed annuities with $2.8 billion in sales, according to the Advantage Index Sales & Market Report published by AnnuitySpecs.com. While the U.K.-based company did not break out equity index annuities in its third-quarter financial report, it posted flat capital reserves of 11.5 billion pounds, as declines in the equities markets were offset by factors such as better exchange rates as the dollar gained against other currencies. The company will not report its bottom line until the end of the year.

American Equity Investment Life Holding Co. (AEL Quote) is the third-largest player with $1.1 billion in fixed index annuities sales during the first half of the year. In its third-quarter Securities and Exchange Commission filing, American Equity swung to an $11 million net loss, its first this year. Revenue dropped by $105.5 million, primarily due to $59 million in realized investment losses and an $84 million decline in the fair value of derivatives.