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Macquarie: New Fiduciary Rule Not A 'Game Changer' For AIG And American Financial


Macquarie said the recent Department of Labor (DOL)'s finalized fiduciary rules for advisors and qualified retirement plans is not a "game changer" for property/casualty insurers with annuity operations such as American International Group Inc (NYSE: AIG) and American Financial Group Inc (NYSE: AFG).

"Our discussions with industry participants reveal this is not a game changer for the P/C companies with annuity operations, with the caveat that the companies are still going through documentation," analyst Amit Kumar wrote in a note to clients.

Kumar said one of the biggest questions leading up to the final DOL fiduciary ruling for annuity sellers is whether or not fixed indexed annuities will be lumped in with variable annuities.

"In what we view as a negative surprise, it looks like fixed indexed annuities will be not be covered by the Prohibited Transaction Exemption (PTE) 84-24, which allows commissions to be received by agents and brokers on sales of vanilla fixed annuities. Instead, fixed indexed annuities will fall under the best interest contract exemption (BICE)," Kumar noted.

The analyst's discussions revealed that the distribution channel is an important consideration in evaluating the impact. The bigger the retail piece, the bigger the piece at risk from this change.

He continued, "Recall, for AFG, this is only 12% for producers who could be selling insurance only products and might hold no securities license. The biggest piece for AFG is the banks channel and RR reps (36%) that will likely have the structure to more easily deal with the additional considerations."

Macquarie's analysis shows a $100 million reduction for AFG would result in less than a penny impact on earnings. Kumar maintained his Outperform rating on AFG.

Separately, a note from Macquarie analyst Sean Dargan says the falling of fixed indexed annuities under BICE will complicate plans by companies to pivot away from variable annuities to indexed annuities.

"This would also be a negative for indexed annuity mono lines American Equity Investment Life Holding (NYSE: AEL) and Fidelity & Guaranty Life (NYSE: FGL)," Dargan wrote.

Latest Ratings for AEL

May 2021Morgan StanleyMaintainsEqual-Weight
Apr 2021Morgan StanleyMaintainsEqual-Weight
Feb 2021Morgan StanleyMaintainsEqual-Weight

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