Today, close to 70 percent of fixed index annuity production at Allianz Life is coming from registered representatives, according to Tom P. Burns.
That’s up from less than 30 percent eight years ago, said the company’s chief distribution officer for annuities. Allianz has been the top seller of fixed index annuities (FIAs) for 14 of the last 15 years, according to Wink.
The increase in distribution through registered reps was by design, Burns indicated. “Our strategy has been to go directly to the broker/dealer (B/D) space, and offer that product to help the advisors with their planning with the consumer,” he said.
He made the remarks during a senior executives’ panel discussion at this year’s Retirement Industry Conference in Chicago. The conference was sponsored by LIMRA Secure Retirement Institute (LIMRA SRI) and Society of Actuaries (SOA).
Allianz is bullish on the future for the FIA business in the rep space, Burns said.
In today’s market, “registered reps are starting to look at fixed index annuities as a potential vehicle for helping people with their retirement planning,” he explained.
This has been particularly the case in the last couple of years, when various companies have not wanted to put as much variable annuity business on the books as they did in years past, Burns said.
As a result, the diversity of having both variable and fixed annuities available to recommend for clients is coming into favor, he indicated.
Burns said he sees the FIA space as becoming a much larger component in the retirement plan market for guaranteed lifetime income for the consumer.
As for the new competitors that have entered the FIA market in recent years, he said his company always knew that new players would enter the market, most likely traditional insurance companies such as “the Mets, the Prus, the Pacs and what have you.”
But now some private equity firms have entered the market too.
“We love competition, but do they (the private equity entrants) have that long-term nature?” Burns asked. “It will be interesting to see five, six, seven years down the road.”
Other annuity highlights
A few other annuity highlights from the panel, as well as some from other sessions at the conference, follow:
Income annuities. Three years ago, plan sponsors weren’t very interested in income annuities, according to Joseph F. Ready, executive vice president and director of Wells Fargo Institutional Retirement and Trust. For instance, on a scale of one to 10, discussions with sponsors about the products rated about “two,” he said.
The conversations would last about 30 seconds, and the sponsors just wanted to hear a little about the projects. “Just keep me informed,” they said.
Today, however, income annuity conversations with plan sponsors run as long as a half-hour or 45 minutes, Ready said. Today, the sponsors “want to understand it more and what the options are.”
He credited some of this shift not only to greater education and awareness but also to sponsors having time to reflect on what might happen to principal if there is another market downturn.
Guaranteed living benefits. “We are witnessing a rapid increase in the use of guaranteed lifetime withdrawal benefit feature in the annuity portion of a retirement plan,” said James D. McCool, executive vice president-client solutions at Charles Schwab.
The features are being sold or presented to retirement plan participants at retirement, he said.
The S&P index is now at an all-time high, McCool observed, so the need is growing for both upside equity exposure and also downside protection. “Those kinds of words are resonating,” he said.
Annuitization. Benefits to annuitization for consumers include facilitating higher expected spending, according to professors Michael Finke, Ph.D., of Texas Tech University, and Wade Pau, Ph.D., of The American College. In addition, the products hold their fees and investment risk constant, they said.
Annuitization helps reduce longevity risk too, as well as the risk that persons with dementia might mismanage their money, said Finke.
The comments on dementia risk must have hit a nerve, because many people at the conference remarked on the comments after the session was over.
According to Finke, the prevalence of dementia grows with age. To illustrate, he showed a chart that puts the prevalence of dementia in North America at just 0.8 percent in the 60-64 age band but at 12.8 percent at ages 80-84 and at 30.1 percent at ages 85 and up.
Variable annuities. The prospects are “limited” for sales growth in variable annuities over the next two years, Joseph E. Montminy said. That is due to all the changes the industry has been making to its products and distribution in recent years, said the assistant vice president for LIMRA SRI.
However, the industry will see “slow growth” in two variable annuity sectors that have been emerging.
Those new sectors are “accumulation-focused variable annuities” (such as those sold by Axa, Jackson National, Protective and Guardian), he said, and “structured annuities” or “index-linked variable annuities” (such as those sold by Axa, Allianz, MetLife and CUNA Mutual Group).
Single premium immediate annuities. Professor Pfau debunked the commonly-held notion that it’s best to wait to buy a single premium immediate annuity (SPIA) until interest rates go back up. The notion derives from expectations of getting a higher payout by waiting.
Waiting could mean the consumer will spend down the portfolio faster than otherwise, Pfau said. Or, if a person decides to put the retirement money into a bond mutual fund instead, the person “may experience capital losses” in the mutual fund if interest rates go back up later on, he said. “So even if the annuity rates have become higher, you may not be able to get more income (from buying an annuity in the higher rate environment), because your portfolio is now worth less.”
A low interest rate environment can be a relatively good time to annuitize, he said, because “you’re getting your principal back; you’re getting interest on that principal; and the mortality credits.”
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