Richard Hellerich, Brian Myhr and John Douglass
"Protracted low interest rates have impacted all lines of the annuity business, causing manufacturers to reassess their exposure among various product lines,” said Joe Montminy, assistant vice president and director of LIMRA annuity research. “The sustained uncertain economic environment has many companies implementing conservative risk management strategies in an effort to prudently manage their business.”
Despite an overall 11 percent decrease in fixed annuity sales from 2011-2012, LIMRA’s research shows that indexed annuity sales hit a record high of $33.9 billion in 2012—a five percent increase compared to sales in 2011 (see chart for an overview of LIMRA’s statistics for all annuities).
In summarizing sales for the fourth quarter of 2012, Jack Marrion mentioned on his indexannuity.org website that “Independent agents accounted for 83 percent of fourth quarter index annuity sales. FIAs with 10-year surrender periods accounted for almost three out of four sales. He went on to say, “As in the previous quarter, the driving force behind sales on most of the top selling products was premium bonuses, but the roll-up rate of the lifetime income benefit on other products continued to generate sales. The biggest effect on sales is that the amount of deposits in bank money markets and short term certificates of deposit increased by $460 billion from April to December in 2012 (nervous money prefers to remain liquid).” (http://www.indexannuity.org/ic2013.htm).
Last year Broker World conducted an annuity round table discussion about the state of the market. The overall response was that the opportunities for sales were strong, yet the current investment climate and the fact that carriers were faced with difficult challenges in pricing products and managing strains on reserves kept new product introductions to a minimum. This month these annuity marketing organizations were again asked their opinion of the current annuity market.
Richard Hellerich, principal, Great Plains Annuity & Life Marketing, Lenexa, KS. “In my opinion, nothing has changed regarding the current investment climate—it is still tough on carriers. Where weekly notifications on annuity interest rate changes are the norm, we are also seeing some reductions to income roll-up rates on some fixed indexed annuities. From conversations with our annuity producers and looking at the average of case demographics on submitted annuity production processed by our office, we have noticed several trends.
“First, we are seeing younger issue ages with baby boomers embracing the fixed indexed annuity value proposition. Is this due to their concerns about another market downturn? A flight to safety by younger savers worried about government spending, Social Security solvency and the economy in general? While I’m not 100 percent sure of the answer, I do know we are seeing lower issue ages with the business processed through our office.
“Fixed indexed annuity products offering secondary benefits such as chronic care and enhanced death benefit riders are gaining in popularity and sales. Several carriers have launched new FIAs offering these flexible benefits. I think clients like the idea of having their premium dollars performing double or triple duty if needed. The options of guaranteed lifetime income, chronic care benefits if health issues force the need (opposed to paying for a “use-it-or-lose-it” benefit), and providing the option for an inheritance benefit all in one contract is generating consumer interest and, at our office, sales.
“I believe savvy consumers at the crossroads of early or pre-retirement understand they are on their own when it comes to creating reliable retirement income. Massive government spending and budget deficits, coupled with the Fed continuing to print money and the lack of fiscal leadership inside the beltway, point to a harvest of higher taxes and rising inflation at some point in the future. Our responsibility is to educate consumers regarding their choices and provide financial options that fit their risk tolerance, desire for guaranteed returns, and flexibility for future needs. While the number of new annuity product launches may be down, interest in this product solution is growing rapidly.”
Brian Myhr, vice president, Fairlane Financial Corp., Fort Lauderdale, FL. “Nothing much has changed during the last several months. Newer products just slice the loaf of bread differently. In other words, there are only 100 pennies in a dollar, and because the product actuaries are responsible for return on investment and return on earnings, there can’t be too many bells and whistles we haven’t already seen.
“While the investment returns many insurance carriers receive have continued to be anemic, a few exceptions are those carriers operated by hedge funds. Although unorthodox in the insurance environment, these companies can and do offer higher caps and more generous compensation to producers, due in part to their savvy investment experience.
“Until long term interest rates rise, producers will have to focus on the guaranteed lifetime withdrawal benefits and other ancillary benefits being laced into fixed index products.”
John Douglass, principal, Annuities Exchange/Financial Products Corp., Milwaukee, WI. “A lot of exciting new products are hitting the street every day. One feature that we offer to brokers is our learning center, where I have the opportunity to talk to home office representatives about new products as they are introduced. I get the opportunity to learn along with the brokers who are listening to the new features that the companies are introducing.
“Most recently, the changes made to the living benefit riders on indexed annuities have taken center stage. In addition to providing guaranteed income, which they did in the early generations of the product, they now offer many outstanding features—guaranteed death benefit as well as other benefits, to establish one contract that can meet many needs for the consumer. This has proven to be a very popular approach and continues to keep the indexed annuity market going strong.
“In addition, we have the niche products like critical illness and wealth transfer products that are proving to be very popular. Despite the downturn in the economy, people still have needs, and they must deal with these important life decisions. To meet these needs, one of our challenges as brokers is to address the downturn in the interest rates. Many of our clients, particularly the older ones, do not want to be forced back into the market, still having memories of what happened to their portfolios in the most recent recession.
“A guarantee of 3 percent with deferred annuities still proves to be very attractive in comparison to certificates of deposit and money markets.
“Insurance companies have proven time and time again that they can come up with products that meet consumers’ needs. I am confident that they will continue to strive as they have in the past. All the brokers who have been in the market as long as I have remember when we all thought whole life was dead, back in the 1970s, when everyone was buying term and replacing whole life insurance with all kinds of variations of deposit term, etc. Then the insurance industry moved on to all the other generations of interest-sensitive whole life, universal and variable life. It always amazes me how clever the insurance companies can be in creating new products for us to sell.
“There are more opportunities today for a broker than ever before. The needs are more important than ever as the baby boomers try to rebuild portfolios and provide retirement income for longer periods of life expectancy. The future of the life insurance industry is bright and attractive for the informed producer helping cope with issues of health care and providing benefits for our clients’ families.
“To summarize, indexed annuities, guaranteed CD-type annuities, life products including indexed universal life, and wealth transfer single premium whole life are my current top picks.”
