Q.Which products are currently seeing the most activity and which do you foresee having strong sales in 2020?
Douglass
Currently, our MYGs are very popular. First, the interest rates are attractive for today’s market. Secondly, they are short term, in hopes of interest rates increasing.
Gipple
Which products we are currently seeing the most activity with kind of ebbs and flows week after week with the behavior of the stock market and the mentalities of consumers. However, overall, the elephant in the room for us is in what we refer to as the “income soon” category. That is, indexed annuities with a rider attached that is designed to provide guaranteed income starting within five years. I would say about 75 percent of the products that we illustrate and sell are in the indexed annuity “income soon” category. Occasionally however, when the stock market gets crazy, we will see a spike in indexed annuities that have strong accumulation potential such as higher caps or a good volatility controlled strategy. MYGAs also spike in times of turmoil. For example, in the rough stock market of Q4, 2018, MYGA sales industry-wide were up over 80 percent from the same quarter in 2017. But again, overall, it is the “income soon” category. The relatively new “structured variable annuities” that share the traits of indexed annuities have grown as well within the securities distribution. These products make a great bond alternative.
What will sell in 2020? I think a lot of the same. I think the fixed annuity business in general will continue to be strong even though we will continue to have regulatory developments at the state level that could get interesting. Annuities just have a great tailwind, which is the baby boomers—who own 60 percent of our country’s wealth—retiring. I also believe that the equities markets will be rocky in 2020 for various domestic and global reasons. As a result, accumulation focused indexed annuities and also MYGAs will sell. Within the securities distribution, “structured variable annuities” will continue to grow. And of course, the aforementioned demographics will allow the sales of indexed annuities with GLWBs to continue to grow. Regardless of market conditions, annuities provide these baby boomers with something they cannot get elsewhere—longevity credits. And the value of longevity credits is huge whether markets are rough or smooth.
Q.Which consumer markets/demographics are currently purchasing annuities, and what product types?
Douglass
The market for MYG annuities has always focused on an older demographic. I would consider 50 and above as our key market. However, the indexed annuity can appeal to all ages with upside potential.
Gipple
I often discuss a spectrum that spans the 20 year period that starts 10 years before retirement and goes to 10 years after retirement. This is the 20 year spectrum of the common annuity purchasers. On the young end of this spectrum (Ages 50-55) you have variable annuities. Then as you progress down the spectrum and get close to retirement, you have clients buying FIAs or VAs with GLWBs. After retirement you have accumulation focused FIAs and also MYGAs as alternatives to bank-type conservative products. I would say the typical client has at least a few hundred thousand dollars in investable assets and—based on industry averages—buys an annuity for $100,000—$150,000 (depending on annuity type). The multi-millionaires that don’t believe they will ever run out of money are still more interested in stocks/bonds/ETFs/REITS/etc. than they are annuities.
The next decade or so will be interesting because research shows that the 82 million people strong millennial population is more conservative than their parents ever were. This will lead the average issue age of annuities to decrease.
Q.Where do you project interest rates going in the coming year and what effect do you see that having on the sales of various product types?
Douglass
With return of higher interest rates, all guarantee-based product’s appeal would greatly increase. MYGs and indexed annuities would enjoy higher caps or growth potential.
Gipple
I think there are 15 trillion reasons that interest rates will remain low for a while. That is, of the $100 trillion global bond market, $15 trillion is currently yielding negative! This means that our bonds in the U.S. will continue to be demanded by global investors which will keep our bond prices high, which puts downward pressure on yields. I also believe that a rocky stock market will continue to bolster demand for “safe haven” assets like U.S. Treasury Bonds, which will also put downward pressure on rates. I just hope there is somewhat of an offset to those lower rates by corporate credit spreads increasing. After all, it is mostly corporate bonds (versus treasuries) that insurance carriers purchase.
I think regardless of what interest rates do, fixed annuities as a whole and also structured variable annuities will continue to grow. Why? Because it’s all a relativity game right? In other words, if caps on indexed annuities, for example, go to three percent, that would probably mean that certificate of deposit rates go to almost nothing. With the low rates continuing, you will also see a continuation in the development of the volatility controlled strategies that have proliferated in recent years.
Q.What product features and/or riders are fueling sales in the fixed indexed and variable annuity markets?
Douglass
Product features like upfront bonuses have fueled sales in annuity products, fixed or variable. The increase in allowable annual withdrawals up to 15 percent of the accumulated value is also an attractive feature.
Gipple
In the fixed annuity world, everything is increasing. As of Q1 of 2019, fixed annuity sales were 38 percent higher than Q1, 2018, and every category (Book Value, MYGA, FIA, SPIA, DIA) had increased from a year earlier by double digits.
The VA world is different. As a matter of fact, as of Q1, 2018, the fixed annuity market had experienced more sales than the VA market for 11 of the preceding 13 quarters. What a flip-flop from a decade ago! Also, VA sales in Q1, 2019, were down almost 10 percent versus Q1, 2018. Again, however, it is not all goom and dloom with VAs as structured variable annuities are really growing. But, at only $12 billion in 2018 sales, it is still a small component of the overall $230 billion annuity market.
Q.Are you seeing an increase in younger producers? What might be done to attract younger generations to annuity sales?
Douglass
The increase in interest rates would attract younger brokers to enter the profession seeking higher potential for sales. Another big factor would be the need for wealthy individuals to seek advisors which would provide more lead potential and increase sales opportunities. The revision of estate laws and tax structure would fuel the market. Our products need to solve a need for our clients. Annuity and life products provide security and peace of mind, including income potential for the future.
Gipple
My organization works with many younger producers but I cannot say I have seen an “increase” in their presence. To me, attracting young producers is all about education, training and professional development. However, educating young producers may be unattractive to some carriers and IMOs because this makes for a very long time from bringing the agent aboard to actually getting revenue from their sales. I am 41 years old and have another 20—30 years to go, so I am not as concerned about short term sales as I am about building a sustainable practice with professionals, young or “seasoned.” If an IMO either has an educational curriculum or has a carrier that provides a “template” educational curriculum, that—along with a few other things—would go a long way in attracting younger folks. Also, as I alluded to earlier, I believe that the “flight to conservatism” with younger investors may make annuities more “cool” than how they have been perceived historically—like how cool stocks and bonds were in the 90’s. My column in this month’s magazine elaborates a little more on bringing in “new blood.”
