In the last few years, annuity production industry-wide has been in a state of flux. Many factors have impacted our industry including a complex and changing interest rate environment, strong stock market and lastly the now abandoned Department of Labor (DOL) regulations. Recently, the Life Annuity Specialist panel brought together noted industry thought leaders to look at the future. Here is an overview of what they shared and what it could mean for your business.
Overall Encouraging Comments
The panelists felt that the current interest rate environment will have a positive influence on annuity sales in 2019. They also felt that the likelihood of greater market volatility or a correction will increase sales. Lastly, they did not feel that new regulations like the DOL fiduciary rule would impede sales in the next couple of years.
2018 was a turnaround year with total annuity production up 5-10% after being down 8% in 2017. The take away for financial professionals is that they should mention the potential for volatility in other asset classes in client conversations. Fixed indexed annuities on the other hand provide protection against loss with an annual reset and floor. Plus they provide strong income potential with available strategies.
Indexed annuities were down 7% in 2017. The panelists expect 2018 sales to be up 5-10% to between $65-70 billion as an industry. One late developing trend is that more money is going into flexible accumulation products rather than income products.
A financial professional focused on income rider annuities may be missing a big opportunity. Many pre-retirement and retirement age clients are undecided about income. They are also concerned about principal loss with bonds in a rising interest rate environment. There is a whole new breed of accumulation products with short surrender periods, low costs, good liquidity, and strong interest crediting potential. Financial professionals should look for stagnant or at-risk money in banks or bonds in their clients' portfolios.
In the fixed indexed annuity space dominated by the multi-year guaranteed annuity (MYGA), production was down 12% in 2017. The panelists expect 2018 MYGA to increase to $45 Billion, up 15-20%. They predict 2019 will be a very strong year of potentially 25% growth due to equity uncertainty and good rates.
Financial professionals should not overlook these fixed rate products in their marketing efforts. As these projections indicate, projected volatility may drive many pre-retirement and retirement clients to seek guaranteed returns. Rates are up with several carriers offering five year products in the 3.6-3.7% range indicating this segment may develop into a growth opportunity in 2019.
On the income annuity front, single premium immediate annuity (SPIA) and deferred income annuity (DIA) production was down 8% in 2017. This sector is expected be up modestly 2018.
Variable annuities (VAs) are predicted to reverse their multiyear decline in 2018 and will climb to $100 billion, a 5% increase in 2018. 2019 may be down due to the threat of increased market volatility, however, buffering and indexing features may help. Potential Securities and Exchange Commission regulations could interfere with growth.
Fixed Indexed Annuities
There are several headwinds for VAs which bode well for Fixed Indexed Annuities (FIAs). Most carriers require limited asset class selection or volatility control strategies for income benefit riders. These selections have not performed that well and have soured many financial professionals. They may not provide enough upside potential to offer greater returns than a FIA. VA sales are down 45% from 10 years ago, while FIA sales have more than doubled. Many distribution channels formerly dominated by VAs are now producing more FIA business. Only the wire houses and bank channels are still dominated by VAs.
Product mix in distribution channels has dramatically altered past five years. VAs only claim a majority in wire house and captive channels, versus all channels five years ago. VA products still hold first and second spots in captive and first spot in wire house. The top six products in the bank channel are traditional fixed annuities, versus 2013 where the top seven were VAs. Five of the top six products in the Independent channel are FIAs now, compared to the top five being all VAs in 2013. FIAs account for 28% of top 10 sales in wire houses compared 0% five years ago.
Other Key Take-Aways
- FIAs are having their biggest year ever.
- Old variable annuity business won’t move to new variable annuity products due to the benefit base greater than the account value.
- Regulations: DOL vacated, FIAs rebounded faster than VAs due to changes put in place by broker-dealers due to the proposed DOL rule.
- National Association of Insurance Commissioners (NAIC) model regulation stalled, it will not occur by year end. New York rules may effect on non-registered products but provisions relating to longevity risk are a plus for fixed indexed annuities.
- Fee based VA and FIA business in in its infancy.
- Direct to consumer? A planner is needed.
- Buffered or structured annuities in a volatile market? Bank and broker dealer channels will be more comfortable with this alternative.
- The Investnet Platform is increasing FIA awareness in the Registered Investment Advisor space.
- Will FIAs be registered? The answer is a definite no.
- Was the Ohio National exit a harbinger of a trend? The answer is no. Merely one organization focusing on its strength in the life insurance market.
With favorable tailwinds for the products the insurance industry offers, make sure you are positioned to grow with the opportunities in 2019. Schedule a call to discover how Partners Advantage can help elevate your business.