Perhaps the biggest jaw-dropper in the past week was Wink, Inc.’s report that indexed annuity production broke yet another record, with sales hitting $10 billion for the quarter.
It is one of many recent annuity developments that provide clues to fixed and variable annuity trends that advisors and carriers and are facing or soon will be facing.
Fixed annuity sales are up by more than 9 percent from second quarter, which was itself a record-breaking quarter on sales of $9.2 billion, according to Wink. Third quarter results were also up -- by more than 15 percent -- from third quarter last year.
Why the jump?
Wink’s president and chief executive officer Sheryl J. Moore points out that many carriers had made changes to their products in the third quarter. There were a number of “fire sales” going on too, she said.
No doubt those fire sales were lit by a desire to get clients into older and presumably richer products before those contracts were phased out.
In another era, the consistent stock market strength of recent months might have prompted equity-minded customers to turn away from fixed products like indexed annuities for the potentially greener pastures of hoped-for equity growth.
But in the post-recessionary climate of 2013, it appears that the fixed indexed products still have their pull among certain buyers.
A possible factor here may have been the volatility that security minded buyers saw in the third quarter stock market despite its overall gains. Take the Dow, for example. Its third quarter low was nearly 14,470 in mid-June. Its high was nearly 15,660 at the end of July. But at the end of the quarter, the Dow was had fallen back down to nearly 15,130.
Seasoned investors might not fret much over such ups and downs, especially since the Dow did not drop back to the nine-month low of nearly 13,330 in early January. But for people approaching retirement, swings like those in third quarter can be worrisome. By comparison, indexed products with upside potential, guarantees and no downside might have persuaded them to buy.
Research suggests that is what has been happening.
According to a 2013 survey that Allianz Life published in April, for instance, a large majority — 87 percent — of baby boomers ages 55 to 65 said they were more attracted to a financial product with 4 percent return that’s guaranteed not to lose value than to one with an 8 percent return that also has the possibility of losing value due to market downturns.
Glimpses of trends
Recent product releases cast light on other annuity trends. For example, AXA Equitable Life brought out Investment Edge, a variable annuity that offers more than 120 investment options. For a brand new variable annuity to have that many options speaks as much to the tenor of the times as it does to product positioning.
Registered reps are a bit nervous about the slew of new variable annuities coming their way after the long period of feature retrenchment and design reconfiguration. So they are looking for bench strength and flexibility. A new annuity with subaccounts as numerous as petals on a peony may catch the eye of these reps, especially those serving the advanced markets.
The Investment Edge variable annuity makes a nod to simplicity, too. It offers 38 “prepackaged portfolios.” Many carriers, especially those offering lots of subaccounts, do something similar, although 38 is a pretty high number in today’s market.
The product touches on another trend as well. This has to do with types of subaccount offerings. The options in the AXA product include alternative investments, sector funds and exchange-traded funds. The industry is starting to see more such options in newer policies, primarily in variable annuities that do not include guaranteed lifetime withdrawal benefit riders (which this product does not have). Advisors are using such subaccounts to reduce volatility and structure asset allocation for specific needs.
Alternative investing is hot right now, whether inside or outside of variable annuities. In fact, Cerulli Associates just this month reported that the number of sales personnel dedicated to alternative products increased by 54 percent from 2012 to 2013 among asset managers who distributed alternatives to both retail and institutional clients.
Another trend surfacing in the news has to do with income annuities. In mid-November, MassMutual reported that its total annuity sales, year to date, not only “significantly” exceeded prior full-year sales, but that it has detected “surging interest” in income annuity offerings. That surge includes interest in the company’s new flexible premium deferred income annuity.
Time was when income annuities, including deferred income annuities, couldn’t get anyone to bat an eye. Now the products get the high-five in corporate sales reports. Definitely au courant.
Back to indexed annuities. Allianz, the top fixed indexed annuity seller throughout the year, brought out two new products in recent weeks.
The most recent one is Signature 7, a fixed indexed annuity designed for distribution through financial professionals who are associated with the company’s fixed “preferred” field marketing organizations; it has a seven-year decreasing surrender charge and is designed for retirement accumulation. A few weeks previous, the Allianz debuted Allianz Core Income 7 Annuity with Core Income Benefit rider, a fixed indexed annuity aimed at income needs and designed for broker-dealer distribution; it offers two lifetime income withdrawal options (level or potentially increasing).
The two products illustrate the increasing interest that indexed carriers are showing in distinct products for different distribution channels. Variable annuity carriers have done that for a number of years, but it’s still pretty new on the indexed side of the house.
The trend is being helped along by carrier development of proprietary products for exclusive distribution and perhaps also by certain broker-dealer interest in the indexed products if and only if the product meets certain requirements. Broad carrier interest in multi-channel distribution is a factor, too. In each case, the demand is for products that fit the channel profile like a glove.
Carriers that do not innovate so that their products include more investment choice and guaranteed retirement income at a lower cost will be left behind, predicted Aite Group.
Another trend the research firm identified in a recent annuity report is the much-publicized entry of more private equity and venture capital firms into the annuity industry. Aite’s take is that the purpose is to “leverage opportunities for product, process and technology innovation.”
But which new product innovations? Lifetime income guarantees and variable annuities with “hundreds of options” that can be used to tailor and tax shelter portfolios for investors' needs, the researchers say.
Turning to financial advisors, Aite said a persistent trend is toward fee-based accounts and compensation, via large broker-dealers as well as the registered investment advisors (RIAs). For that reason, annuity carriers should begin to experiment with lower cost, fee-only variable annuity products, the report said.
Many annuity professionals have already created, or joined, an RIA, so producers are on the case. So are insurance marketing organizations. For instance, Creative Marketing International Corp., a Kansas City IMO that has long served independent agents, agencies, reps and broker-dealers, just announced that it is adding a dedicated team to meet RIA needs as well.
The annuity world that is in the making is bringing in different people, products, features, carriers, terminology and more. The above are just a few examples. More is yet to come.
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