Lincoln CEO Says Smart Money in Annuities After Buffett

Dennis Glass, chief executive officer of life insurer Lincoln National Corp., said intelligent investors are backing variable annuities after Warren Buffett’s Berkshire Hathaway Inc. bet on retirement products this week.

“We’ve seen some acquisitions of blocks, and some reinsurance transactions,” Glass said today on a conference call with analysts. “It’s very encouraging to see smart money coming back into the variable-annuity space.”

Berkshire agreed in a Feb. 5 reinsurance deal to take on as much as $4 billion in liabilities tied to savings-product guarantees from health insurer Cigna Corp. Leon Black’s Apollo Global Management LLC, Guggenheim Partners LLC and Philip Falcone’s Harbinger Group Inc., have also added annuities.

Variable annuities can provide minimum guarantees to clients, and companies’ costs climb when bond yields fall and stocks decline. Insurers including Hartford Financial Services Group Inc. have retreated from variable annuities after being burned by losses. Lincoln and other companies that remained in the business have increased some costs for customers as interest rates remained near record lows.

Money managers like Black and Buffett are increasing the funds they have available to invest by taking on books of business initiated by other companies. Cigna agreed to pay Omaha, Nebraska-based Berkshire $2.2 billion to take its risks.

Lincoln’s Ranking

Lincoln was the No. 5 seller of U.S. variable annuities in the first nine months of 2012, according to industry group Limra. The Radnor, Pennsylvania-based insurer said yesterday that annuity deposits jumped 9 percent last year from 2011.

Glass’s firm dropped 1.1 percent to $29.18 at 4:15 p.m. in New York trading, as the Standard & Poor’s 500 Index slipped 0.2 percent. Lincoln rallied about 23 percent in the past 12 months, beating the 12 percent gain of the index.

MetLife Inc., the No. 3 seller in the nine months ended Sept. 30, has said it’s seeking to cut the sales for a second year in 2013. Prudential Financial Inc., the top seller in that period, said yesterday that annuity sales fell about 14 percent in the fourth quarter from a year earlier.

“We’re being tough-minded about annuities and making sure that our risk exposure there doesn’t grow too much,” William Wheeler, MetLife’s president of the Americas, said in a November conference call with analysts. “This is a business we like. We can’t let it get too big.”

Evaluating Deals

Sellers of annuity blocks haven’t always gotten a good deal, Allstate CEO Thomas Wilson said today on a conference call. The Northbrook, Illinois-based auto-and-home insurer transferred almost all its variable-annuity risk to Prudential in 2006 while retaining its fixed-annuities business.

“There are deals people have been making that don’t look that attractive to me,” Wilson, 55, said in response to a question about whether he was considering selling or spinning off the fixed-annuity business.

Apollo’s Athene unit reached a $1.8 billion deal in December to buy a U.S. life company that sells fixed annuities from Aviva Plc. The agreement values the target at about 60 percent of statutory capital surplus, a measure of assets minus liabilities used by regulators.

Fixed annuities offer a stream of payouts at a set rate. In variable contracts, savers have the potential for higher returns if stock markets gain, and can lock in minimum returns.

Lincoln and Hartford received U.S. bailout funds during the financial crisis after guarantees tied to variable annuities weighed on results. The insurers repaid the aid.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net