2012 Could Be Rebuilding Year for Annuities
At an insurance conference this year, an agent in the audience stood up and asked a panel of company executives about when they are going to come out with some new products.
A review of new products shows that annuity carriers have definitely unveiled new products this year, but certain product lines got most of the attention. More on that in a minute.
Questions from the field about new products usually surface when the economy is uncertain and the regulatory environment is in flux. That’s because carriers tend to rein in product development, and sometimes sales as well, as they respond to conditions. Some carriers do this to protect existing profitable business, while others pull back to assess whether the designs they have in development still have market appeal and likelihood of profitability.
Either way, independent agents, brokers, marketing organizations and other distributors often feel as if their cupboards are bare during these periods.
That is the way some agents and distributors are feeling now. The tidal wave of riders, options, features, underwriting classes, flexibility and “more” of the mid-2000s seems to have shrunk to a mere trickle.
It’s not that independents have no products to offer. Tried-and-true insurance products usually stay put. However, independent distributors also want new products — ones that might better serve client needs, give the advisor something new to talk about and provide a point of differentiation from competitors.
Even insurance advisors that sell advice rather than product keep an eye out for the new. They build their practices on advising what would be best for the particular client and if they think certain existing products are not best, they let the product manufacturers know, in no uncertain terms.
So, what happened with new annuity products in 2011?
Hardly any rollouts of traditional fixed deferred annuities. No surprise there. Due to prolonged low interest rates, these products didn’t sell as well as in years past. That is because their interest rate advantage over bank certificates of deposit is slim. (A five-year fixed annuity may pay 1 percent or so higher, for instance.) Besides, many carriers have let it be known that they wanted to curtail exposure to annuity products with rate guarantees, due to uncertainty about reserves and capital requirements.
Lots of “tools.” A lot of carriers, in all product lines, have been providing web-based tools, training programs and services to help producers in one way or another. It’s not the same as offering a new product, but since the carriers say the tools should help increase efficiency, effectiveness and knowledge, producers who use them might see an impact on the bottom line. Examples include reporting tools, price/feature comparison services and retirement planning guides to use with customers.
A bashful group of variable annuities. Bashful because the products — either newbies or upgrades — that debuted were not show-stoppers. Some did include interesting subaccounts (including gold bullion, mortgage and exchange-traded funds) and share classes (I-share and O-share) but the lion’s share of the attention was on new or changed guaranteed living benefit (GLB) features.
The GLB focus is a good thing, from a producer’s perspective, because VA producers say customers really like the GLBs. Some producers even say that VAs won’t sell without the guarantees.
But as product watchers had predicted early in the year, the GLBs of 2011 were generally not as plump as previously. For instance, depending on product, the 2011 pricing for the features was a bit higher than in previous years, and/or the payouts have lower percentages or have additional types of restrictions. This has proven not to be a deterrent to sales. VA producers have told InsuranceNewsNet that they would prefer to have VAs with the more conservative guarantees rather than have no GLBs at all. And a third-quarter VA report issued by the Insured Retirement Institute (IRI) and compiled by Morningstar, shows that more than 60 percent of new VA sales do include a GLB.
Still, some VAs did include richer features in the year. For instance, Kevin Loffredi, vice president of insurance solutions for Morningstar, writes in the third quarter report released by IRI that VA step-up features showed higher fixed percentages than in previous quarters.
Another factor to keep in mind is that VA development ebbs and flows during a year. For instance, the third quarter saw only 40 material new filings, according to Loffredi, but second quarter was “highly active” with 162 new filings.
The year is ending on news that Sun Life Financial, Toronto, is closing its U.S. variable annuity and individual life products to new sales at year end. The carrier did roll out at least two new VAs during the year, one of them a fee-free VA, and it did rank in 13th place on a tally of the top 20 VA sales leaders in the United States kept by LIMRA. So, the exit news sits like a lump in the throat to producers who wrote the carrier’s products. It is also a sign of how today’s difficult market conditions can affect even a leading seller of VA products.
Indexed annuities moving right ahead. That’s right. On the index side of the annuity house, product development was alive and well in 2011. Depending on the carrier, the products included designs with multiple index crediting options (as many as six, plus a fixed account in one product); living benefit guarantees; inflation features; designs for exclusive distribution; and various income riders.
Even this month, as the year is winding down, two more carriers debuted new indexed annuity products — The Hartford Financial Services Group and Genworth.
The VA connections of those two carriers are worth noting. As many readers know, Genworth left the VA market early in 2011. And The Hartford was formerly the top seller of VAs, in another day, and still sells the products (ranking in 17th place on LIMRA’s list). But now both are making plays in indexed annuity business.
Time was when most carriers — with a few exceptions -- in the VA business paid no heed to the indexed annuity business, let alone dabbled in it. Even today, most of the pedigree in the indexed business is of the fixed annuity carrier variety. So, the fact that some VA carriers past and present are giving indexed annuities the once over, to the point of rolling out products for sale, is a heads up for the future.
So are these related facts: According to AnnuitySpecs.com, the number of indexed annuity carriers shown in the firm’s third quarter sales report came to 42. Meanwhile, according to Morningstar, the number of VA carriers in the firm’s third quarter sales report came to 37 parent companies (roughly 50, if broken out by issuing entities). As for third quarter sales results, indexed annuities sold nearly $9 billion while VAs sold over $40 billion.
The devil is always in the details, but a quick glance at those numbers and the product development trajectory suggests that index annuity product activity was hot in 2011, that VA activity certainly was present even though a few VA players did leave the market.
Income products are getting ready. This says “income products,” not “income annuities,” because a lot of the development in this area involved GLB riders and options being added to VAs or indexed annuities, not income annuities as such. In addition, several players from the wirehouse/securities side of the financial business — players such as Schwab, Barclays and Putnam — added income funds or options to their products in a clear move to beef up their retirement income solutions for the boomer generation now hitting retirement age.
There were a few new immediate annuities during the year, and a couple of longevity annuity offerings — products that virtually never appeared on annuity product lists, say five or more years ago. Therefore, it appears that some carriers and financial firms were not only adding GLBs but also looking to come out with other retirement income strategies or products.
The answer to the question
The agent’s question about when new products will be coming out may find an answer in these three words: “Maybe next year.”
In the second half of 2011, and especially in the past two months, a number of insurance company executives, analysts and other industry leaders have been talking about growth, saying they want to stop the de-risking and back-pedaling and start growing this business, despite the uncertainty, the low-interest rates and the regulatory uncertainty.
Every time that kind of discussion surfaces, new product innovation usually follows. So perhaps next year will be The Year.
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