Certain buzz words keep coming up in this year’s annuity discussions. A few examples appear below. As the list unfolds, brace for a sprinkling of “investmentese,” or language that derives from the world of securities and investments. Also prepare for a dusting of "computerese," or language that glimmers with a digital aura. The industry is a great borrower of words and terms, after all.
Hybrid. Formerly reserved as a descriptor for indexed annuities — because marketers and gawkers say the products are a blend of fixed and variable annuities — the word “hybrid” is now being used in other annuity venues. Certain index options inside of fixed index annuities are now called hybrid indexes, for example. These options blend investments or investment indexes in such a way that they cannot easily be described as stock or bond indexes. The term hybrid also pops up in reference to fixed annuities that offer long-term care benefits, because the contracts combine annuity elements with long-term care elements. In addition, some marketers have started using “hybrid annuity” to refer to registered indexed annuities because the policies combine elements of indexed policies with elements of variable policies. All of this goes to show that, when people say “hybrid” and “annuity” in the same breath, it pays to ask the meaning.
Proprietary. Some annuity firms use this term interchangeably with the word “exclusive.” The proprietary term started taking wing a few years back when carriers began introducing unique products (mostly fixed index annuities) for sale only through select distributors. Variable annuity companies have designed products for specific distribution channels for years, of course; for example, in the 1990s, some variable carriers entered the bank or broker/dealer channels with products they built expressly for sale in those environments. However, once the fixed companies sallied forth on this, they put the proprietary term on the products they developed, and they limited distribution to a few chosen entities (not necessarily channels). Today, some annuity carriers are also co-designing product options with financial partners — such as the hybrid indexes mentioned previously — and they call the resulting feature or offering “proprietary.” The annuity carriers like the differentiation that comes with proprietary offerings.
Investment-only variable annuities. The term refers to variable annuities that do not offer underlying guarantees such as living benefit guarantees. In one sense, this is a return to the days when variable annuities took their modern shape in the 1990s. Back then, the products had no guarantees at all. Following the market crash of 2001, however, many variable carriers started offering guarantees to help allay customer concerns about market volatility. The guarantees became such strong sellers that variable annuities and living benefit guarantees became virtually synonymous. But after the 2008 recession, carriers began curtailing those guarantees and even omitting them from new product creations. Those new products are much like the variable annuities of yore, but with much different and far more numerous investment options and modeling options too. The “investment-only” moniker got attached to these products a year or two ago, and the term seems to have stuck. For now, it helps producers differentiate the guarantee-free variable annuities from those with guarantees.
Alternatives. This term has been around for several years, but it seems to be in ever-greater use inside of variable annuities. Perhaps that’s due to the growing popularity of alternative investments in general. This spring, for example, Morningstar reported that, since the end of 2007, the number of alternative mutual fund vehicles for investors had more than doubled. In 2013 alone, both new alternative fund launches and net assets hit new records, the Morningstar said. Variable annuity carriers say they have been adding alternative subaccount options to products because the options are 1) not correlated with stock and bonds and/or 2) help reduce overall volatility. The fact that the A-word gives products an au courant boost probably doesn’t hurt either. Annuity producers always like to have options to offer clients, including alternatives.
Volatility. Time was, the word volatility rarely came up in annuity discussions or products. But it’s there now. Ever since the last two recessions, and particularly the one in 2008, carriers and distributors have become highly sensitive to consumer concerns about variable subaccounts that go down in value as well as up. In the fixed index annuity market, carriers have noted the discomfort customers have over the fact that an index (to which interest crediting is linked) could go down as well as up; this discomfort exists even though fixed index annuities have downside protection in event of market declines. To address the consumer concerns, carriers have introduced features — like alternative subaccounts or even hybrid index options -- that they position as volatility controls or limiters.
Annuity platform. That’s the space where annuity stuff resides, but not an actual stage or staging area. Carriers might use the term to refer to its multiple annuity offerings that are housed and administered online through specialized systems and technologies. Some speak of “annuity platform” when talking about product development, sales, training or other functions,. The term appears to be a co-opting of the term “computer platform,” which is a basis of a computer operating system or other software structure. With all the automation that goes into annuity development and support, it was probably inevitable that companies would start talking about their annuity platforms. It’s useful shorthand. Sounds techie too.
De-risked annuities. These are fixed and variable annuities that carriers have pared back (on rates, features, value-addeds, etc.) in order to make them sustainable in the prolonged low interest rate environment. The carriers don’t call the policies de-risked contracts, but the producers do.
Mobile-friendly. Many carriers are debuting annuity materials and support services that are accessible via tablet computers and smart phones. The materials and services are usually accessible via laptop computers, notebooks and netbooks, but the promoters often don’t mention that. Those other devices are mobile, but they have the hint of “old tech” about them. So when it’s “mobile-friendly” you hear this year, think tablet and smartphone.
Not on the list
Notice that terms like “guaranteed minimum withdrawal benefit” and “deferred income annuity” don’t appear on this list. That’s not because the terms have disappeared. Rather, it’s because they’ve gone mainstream.
This particular list shows buzz terms that seem to be getting a lot of play in the annuity business today, even though they may have made the rounds in other industries for several years. Some of the terms, like “platform,” may be nothing more than a rose by another name. But others, like “hybrid” and “proprietary,” appear to be concepts than need reckoning.
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