Members of Generation X believe they will need to save at least $1 million before they can retire. Who can help them save it?
By Linda Koco
Indexed annuities have started the year with signs that the vigorous product expansion seen last year may continue into this year.
Take two recent rollouts as an example: Nationwide partnered up with indexed annuity designer and marketer Annexus on the launch of a new indexed annuity; and Security Benefit added a Morgan Stanley dynamic allocation index option to one of its indexed annuities.
The Nationwide/Annexus partnership marks new strategic alliance for Nationwide as well as for Annexus. It also signals that the industrywide hunt for new distribution relationships, all but decimated during the post-recession recovery period, is back on track.
Under the arrangement, Annexus will market and distribute the new Nationwide New Heights indexed annuity through independent marketing organizations (IMOs).
Long ago, Nationwide began expanding distribution from its own exclusive agents to include independent distribution, banks and wirehouses. But expanding distribution through a strategic alliance with a specialty firm like Annexus, which designs indexed products and markets them through select IMOs, represents an expansion of the expansion.
Worth noting: No one gets left out on this deal. Annexus already is distributing the new product, but Nationwide said it will also make the product available to its existing distribution channels starting next month.
What’s behind it?
New Heights, the new Nationwide annuity, is a product built with the low interest rate environment in mind. Its target market is “risk-averse clients who want the stability that a fixed product provides while also having upside growth potential and a return of principal,” according to a company statement. It’s also “built to capitalize on what both [partner] companies see as a market poised for robust growth.”
Nationwide is not a newcomer to the indexed annuity market. However, its sales there have been slow. The company ranked 32 on Wink's Sales & Market Report on indexed annuity sales for third quarter 2013. That’s up from 35th place in the previous quarter and also from 35th place in third quarter last year, but it’s not a giant leap.
Given that indexed annuities have seen record-breaking growth in the past year — surpassing $10 billion in third quarter sales alone according to Wink — it is likely that Nationwide wants to up step up its game with a state-of-the-art product.
That’s where Annexus comes in. The firm is a well-known indexed annuity developer and marketer. It works with equally well-known Genesis Financial Development on specialized risk management capabilities. Together, the two firms have logged 13 patents and 23 patents pending on pricing and hedging methodologies on several products.
The designer-level DNA that results from that collaboration shows up in the new annuity. For instance, the policy’s earning potential is “uncapped,” Eric Henderson, senior vice president-life and annuities, said in the product announcement. This is “a rarity in the fixed indexed annuity world.”
Other features include two optional riders for an additional cost: a lifetime income benefit rider and an enhanced death benefit rider, each available with a purchase payment bonus option.
“We’re adding new products to our portfolio to enhance advisor choice and diversify Nationwide’s risk profile,” Henderson said of the new initiative. What seems apparent is that the company also intends to compete for its share of the “robust growth” that both Nationwide and Annexus have said they expect to see in the indexed annuity market.
Interest crediting expansion
Security Benefit’s news reflects another trend: Carriers expanding the index options in their products. In this case, Security Benefit has added a new interest crediting option for its popular Secure Income Annuity, a flexible premium indexed deferred annuity. The option is not something that advisors see every day. It is a two-year point-to-point account based on the Morgan Stanley Dynamic Allocation (MSDA) Index.
The option joins two others: an annual point-to-point index account and a monthly-sum index account. The other options link to the more widely used, and more broadly recognized, Standard & Poor’s 500 Composite Stock Price index.
So what’s Morgan Stanley’s more unique dynamic allocation index doing in there with the S&Ps? It will enhance the annuity “for advisors with clients seeking to secure guaranteed income throughout retirement," Security Benefit president Doug Wolff said in a statement.
The how-to on this rests with design. The MSDA Index comprises U.S.-listed exchange traded funds and indices, representing U.S. and non-U.S. equities, as well as fixed income securities, alternatives and cash, according to Security Benefit. The drill-down gets fairly technical, but the gist of it is that the index uses “rules-based strategy that dynamically adjusts the weight of its components.”
Given the financially sophisticated nature of the new index, the branding power of the Morgan Stanley name, and the secure income focus of the index’s design, the index may help attract a discrete group of financially knowledgeable customers — people who understand and like the “dynamic” approach the index uses to support guaranteed income.
The annuity itself is already a top seller. Security Benefit credits those sales for the second-place ranking that the company held in Wink’s sales reports last year. It’s hard to say whether the presence of the new index will push future sales into the top spot. However, the company’s 2013 sales were not far under those of the long-reigning top seller, Allianz. If the new index helps attract some big deposits from with-it customers, that could make a difference.
Since its beginning in the mid-1990s, the indexed annuity business has had many periods of product expansion and innovation, and sales have kept on growing. So for this particular segment of the insurance industry, new product options and designs don’t appear to hurt sales and they may even help.
Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda may be reached at firstname.lastname@example.org.
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