Many Americans are struggling with high out-of-pocket costs for health care.
By Cyril Tuohy
Prudential Financial has a simple approach to the “age wave” of retiring baby boomers: broaden the product portfolio and diversify the distribution channels.
With a distribution force of 125,000 brokers and advisors, more than 25,000 institutional clients and 30 million individual customers, how Prudential chooses to sell life and annuities yields clues about market trends.
Individual life sales hit $731 million in 2013, up from $320 million in 2002, the company said, thanks to the company’s purchase of The Hartford’s life insurance business.
Last year, the brokerage channel was responsible for 55 percent of individual life sales, followed by banks and wirehouses with 32 percent of sales and the agency force only accounting for 13 percent of sales, the company also said.
Compare that with 2002, when Prudential’s agency force was responsible for 74 percent of individual life sales and brokers for 26 percent of sales.
Last year Prudential’s annuity sales rocketed to $11.5 billion, more than five times the $2 billion sold in 2002, the company said. Again, the distribution story was much the same.
By the end of last year, 43 percent of Prudential’s annuities were sold through independent financial planners, 20 percent through wirehouses, 16 percent via banks and 21 percent of sales were closed through the agency channel, the company said.
In 2002, agency sales made up 72 percent of annuity sales, and third-party sellers were responsible for 28 percent of annuity sales.
Company trend data was released at its annual investor day, which was attended by shareholders, investors and analysts.
Prudential reported pretax adjusted operating income of $3.9 billion in 2013. Of that amount, annuities accounted for 36 percent, asset management 19 percent, retirement products 27 percent and individual and group life insurance 18 percent, the company said.
The income mix, said Stephen Pelletier, Prudential’s executive vice president and chief operating officer, U.S., is exactly where the company needs to be to take advantage of the wave of demand generated by the 87 million baby boomers.
Pelletier said the industry was still on the “very front end” of the demographic changes having an impact on the U.S. financial services market.
“That ‘age wave’ that we talk about so much will still be breaking on the shore for another 15 years as the oldest baby boomers have just been starting to retire in the past couple of years,” Pelletier said.
The first of the baby boomers, born between 1946 and 1964, turned 65 in 2011. They have the power to shape the financial services landscape for a generation — quite literally.
“Now, there's nothing particularly new about that insight. You've heard it before from us and others,” he said. But since the U.S. is at the front-end of this shift, insight into the needs of boomers is far from passé, he said.
Younger boomers in particular, those with a decade or more to go before they retire, are going to need defined contribution products with features to produce more defined benefit-like outcomes, Pelletier also said.
On the product side as well, the company’s embarked on a broadening strategy.
New annuity products include Prudential Defined Income (PDI), which offers exposure to bonds only, a single premium immediate annuity (SPIA), which has no cash value, and Prudential Premium Investment Variable Annuity (VA), with no living benefit options.
In addition, the company has modified its highest daily lifetime income (HDI) benefits to one of its VA families. “We are now able to reset key product features such as rollup rates and payout rates for new business as often as monthly without going through any type of refiling process,” Pelletier said.
He said that adjusting annuity features on the fly will mean that the “fire sale phenomenon” of the post-crisis years where annuity carriers frantically “derisked” their annuity portfolios “is now significantly reduced for us from this point forward.”
After the 2008 financial crisis, when interest rates plummeted, annuity carriers couldn’t profitably honor the generous guarantees they had made before the collapse. Many of them had to either restructure or sell their VA portfolios.
“Our strategy is to broaden the characterization of risk in a particular portfolio and to offer solutions with complementary risk profiles and in some cases noncorrelated risk profiles,” Bruce Ferris, president of Prudential Annuities Distributors, said in an interview with InsuranceNewsNet.
On the individual life side, Prudential has conducted a similar product diversification strategy, the company said.
At the end of the first quarter, 38 percent of annualized new business premium was derived from guaranteed universal life (GUL) products, 28 percent from other universal life (UL) and variable life (VL) products, and 34 percent from term life policies.
That compares with then end of last June when 59 percent of annualized new business premium came from GUL products, 15 percent from other UL and VL products, and 26 percent from term products, the company said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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