ATHENE ON A ROLL: Early this week, Fitch Ratings upgraded Athene Annuity & Life Assurance Co.’s financial strength rating of to A- from BBB+ and said the carrier’s rating outlook is stable. The news follows A.M. Best’s decision in April to upgrade the financial strength rating to A- (Excellent) from B++ (Good) and the issuer credit ratings to a- from bbb+ of the members of Athene USA Group, and revised the outlook for all ratings for the member companies to stable from positive. Last November, Standard & Poor’s Ratings Services assigned its A- long-term counterparty and financial strength ratings to Athene Annuity & Life Assurance Co. of New York, Athene Annuity & Life Assurance Co., and Athene Life Re Ltd. and revised its outlook on all core companies in the Athene group to stable from negative.
Getting into A territory, especially by raters as A.M. Best, has been the prize that Grant Kvalheim has been shooting for since October 2013. That’s when Athene Holding completed the highly-publicized acquisition of big fixed index annuity (FIAs) seller Athene USA (then Aviva USA). In the process, the carrier and its member companies lost their rating of A- from Best. Kvalheim, president of the holding company, told InsuranceNewsNet that the company intended to get the rating back up.
Do ratings of A- or higher make any difference in the industry? Agents who sell FIAs say they do — because customers prefer to purchase products of top-rated companies, if the products have the features that customers want. Last year, Athene USA’s sales ranked in 5th place among FIA carriers, according to Wink Inc. Now that the company ratings are back in the A-zone, what will happen with its 2015 sales? Stay tuned on that.
MORE GROWTH AHEAD FOR FIAs: It was once unthinkable that sales of FIAs would ever come near sales of variable annuities, but Timothy Pfeifer is thinking it. In fact, at this year’s annual Retirement Industry Conference in Arlington, Va., the president of Pfeifer Advisory told an audience that he believes new index annuity sales will approach variable annuity new sales levels over the next five years. That’s “regardless of interest rate/equity market movements,” he added. Why? He offered six reasons: Index annuities are more competitive, are not securities, are being distributed through banks and broker/dealers as well as in more traditional insurance channels, are attracting new carrier entries, have less accounting volatility than variable annuities, and have consumer appeal of participation in equities performance with a floor or limited downside risk.
An actuary, Pfeifer also made a few predictions about policy design. One is that Index annuities will feature more emphasis on accumulation and less on guaranteed living withdrawal benefits in the next five years. Another prediction is that distribution will shift even more towards banks and broker/dealers (with lower commissioned, simple design products). However, he said, independent agents still will dominate sales.
QLAC’S TAX BENEFITS: Some customers may view the tax benefits for owners of the new qualified longevity annuity contracts (QLAC) as relatively insignificant. However, for some customers, the benefits could be valuable, points out Pacific Life.
QLACs are deferred income annuities (DIAs) that consumers can buy with qualified funds, up to the lesser of 25 percent of qualified savings or $125,000. The Department of Treasury (DOT) and the Internal Revenue Service breathed life into the products last July by issuing rules that permit purchase of these longevity annuities inside of 401(k) plans and individual retirement accounts (IRAs). Most experts agree that the main benefit is that QLACs allow delay of the policyholder’s income stream for several years, up to age 85. That strengthens retirement security by enabling people to establish a guaranteed income stream for themselves late in life, they say.
What has been getting lost in the discussion is the tax planning opportunity the products may open up. By now, the QLACs enable consumers to delay taking required minimum distributions (RMDs) on the funds used to purchase the QLAC until payouts start. That delay means the customer can also delay paying taxes on the RMD distributions during the QLAC’s deferral period, which can run for several years from time of purchase.
That tax delay can be meaningful to some customers. During the early retirement years, some people may not need to take as much income as required, said Christine Tucker, vice president-marketing in the retirement solutions division at Pacific Life, an early player in the QLAC market. The carrier debuted its first QLAC this spring. It can be “a source of frustration for clients who would prefer the option to take a smaller distribution,” Tucker wrote in the product materials accompanying the QLAC rollout.
Greater RMDs “may bump retirees into a higher tax bracket,” Tucker added. “It can also affect the percentage of Social Security benefits exposed to taxation. For some, it may even increase the premiums they pay for Medicare Part B and D.”
So, for some clients, the QLAC-related tax delay can be of value.
Pacific Life sees DIAs as a long-term growth opportunity, Tucker said in an email to InsuranceNewsNet. As for the QLAC version of DIAs, she noted that, in addition to minimizing RMDs and potentially reducing taxes, QLACs offer other benefits including being complementary to Social Security benefit planning and longevity protection.
About Pacific Life’s QLAC: Called Secure Income DIA, it is a DIA initially designed for use only with individual IRAs, Tucker said. Approved in all states except New York, it is being distributed through independent planners, regional wires, financial institutions and producer alliance. The target market: People age 65 and older with $500,000 or more in IRA assets, who desire lower RMDs, reduced taxes, and the ability to manage longevity risk, she said.
THE SPIA SIZZLE: Those wondering whether advisors are still considering single premium income annuities (SPIAs) for their clients might find insight from CANNEX USA. The company keeps a database on SPIA searches made by advisors who are looking for comparative information on SPIAs for their clients. In first quarter 2015, there were 243,737 hits to the database. That’s up from 239,797 in first quarter 2014; 117,942 in first quarter 2013; and 122,690 in first quarter 2012. The reports do not indicate whether the increase reflects more firms using the service or greater use by the same firms. Still, if interest in the products were waning, it’s doubtful that hits to the database would be increasing. The figures to note are 1) this year’s hits are about double what they were in first quarters of 2012 and 2013, respectively; and 2) the hits in first quarter 2015 are about 3 percent over the same quarter last year.
WHAT'S UP WITH 10-YEAR BONDS? Have you noticed the 10-year Treasury rates lately? Their year-to-date low (nearly 1.7 percent) occurred in late January. Since then, the rates have been climbing in a rocky kind of way. Last week, Wednesday, they reached 2.24 percent — equal to the earlier year-to-date high two months prior. This week, on Tuesday morning, they reached 2.34 percent for a while. It's too early to call this particular "up" a trend, but it's not too early to start keeping a close eye on it, especially for interest rate-starved annuity producers who have rate-starved annuity clients.
AnnuityNews Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].
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