It's debatable if the fiduciary standard is 'higher' than suitability. But the better question might be, who's holding the bar?
By Linda Koco
CHICAGO – Fixed annuity sales have bright prospects in the next five years, due in large part to anticipated strength in sales of income annuities and fixed index annuities, according to researcher Joseph E. Montminy.
In fact, income annuity sales are on such a tear that “their sales will double by year 2018,” predicted the assistant vice president at LIMRA Secure Retirement Institute (LIMRA SRI).
In 2013, income annuities totaled $10.5 billion, but by year 2018, they will likely total over $21 billion, he predicted.
Montminy discussed prospects for income annuities and fixed index annuities during an interview with InsuranceNewsNet in advance of his presentation on annuities here today at the annual Retirement Industry Conference. The meeting is co-sponsored by LIMRA-LOMA Secure Retirement Institute and Society of Actuaries.
According to LIMRA SRI figures, the 2013 income annuity sales total included $8.3 billion in sales of single premium immediate annuities (SPIAs), which start paying an income stream shortly after purchase. The total also included $2.2 billion in sales of deferred income annuities (DIAs), which start paying an income stream several years from policy purchase.
Montminy believes both products will enjoy strong sales gains in the next five years for several reasons.
For one thing, the products offer a simple value proposition, and that allows them to provide maximum payouts to the customer, he said.
Demand is another factor. Simply put, baby boomers will need more guaranteed retirement income as they reach retirement, he said, and some boomers will buy income annuities for that purpose.
Montminy pointed to the widely-expected upswing in interest rates in coming years as another factor. When the rates go up higher than where they are now, the payouts from income annuities purchased in that environment will be higher than they are today, making the products all the more appealing.
In addition, he said that the DIA side of the business is growing. There were only three insurers offering DIAs in 2011, he recalled, but there are 11 carriers selling the products now and “more are expected to enter the market this year.”
Three-fourths of the money going into the DIA products is coming from individual retirement accounts (IRAs), he said, “so as the IRA market grows, the sales volume in DIAs will grow.”
As for fixed index annuities (FIAs), the products sold in record numbers last year — LIMRA SRI estimates the year-end total at $39.3 billion — and Montminy believes they will continue to do well out through 2018.
“In 2014 alone, a FIA sales growth of 10 percent to 15 percent would not be unrealistic,” he said.
As with income annuity sales, rising interest rates will be a factor in the growth of FIA sales. As rates go up, the carriers will be able to increase the caps on interest credited to the policies, and that will help support accumulation-related sales, Montminy said.
Guaranteed living withdrawal benefit riders will help drive FIA sales too, he predicted. In 2013, almost eight out of every 10 sales had such a rider available for sale. LIMRA SRI’s research found that seven of every 10 FIA sales that year had the feature elected when it was available. Montminy believes this trend will continue due to anticipated growth in demand for retirement income solutions.
In 2013, FIAs with the GLWB rider attached accounted for nearly $21 billion of sales, according to LIMRA SRI estimates. That’s a little over half of the year’s total FIA sales volume.
Product development is a factor too. FIA carriers are coming out with different strategies in crediting interest, including customized or uncapped strategies. The new options are attracting sales, he said.
Finally, more companies are sharing in the growth of the market, and that will likely continue, according to Montminy. For instance, according to LIMRA SRI figures, the market share for the top five FIA carriers has dropped in recent years, to the point that only half of the FIA sales in 2013 came from the top five carriers. By comparison, in 2009, fully two-thirds of all FIA sales came from the top five. That means “the sales are not as top-heavy as they were,” he said.
Regulators will continue to keep an eye on both fixed index annuities and variable annuities, Montminy predicted. But that is not due to increases in regulatory violations. “Insurance companies did a nice job with improving policy design and strengthening suitability, to ensure the products are being sold to the people for whom they are geared,” he said. Now, he said, the regulators will keep watch “to be sure sales stay suitable.”
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at firstname.lastname@example.org.
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