Annuity carriers are always making changes to their products. But those changes came fast and furious during the month of March, as the COVID-19 pandemic sent shock waves through the financial industry.
Will the changes be permanent? Will there be more of them? CANNEX held a webinar to give an overview of fixed annuity product changes in response to COVID-19.
“The onset of these changes was both extremely rapid and severe — much more than we saw in the 2008 financial crisis,” said Tamiko Toland, head of annuity research for CANNEX.
March 13 was the day when CANNEX started to see the wave of changes hit the annuity market, said Jamie Branyan, annuity product and operations manager with CANNEX.
“From March 13 to March 20, we saw 12 companies change their fixed indexed annuity rates,” he said. “And from March 23 to March 30, we saw 13 companies change their FIA rates.”
Compare that with the week before March 13, when six companies changed their rates. In a further comparison, the second week of February and the second week of January each saw four companies change rates.
“My point is that we really started seeing three times the amount of changes we normally would see during that period,” he said. “So, in the course of two weeks, we saw 25 changes. It was coming fast, it was coming furious.”
The first thing carriers changed was the crediting rates, Branyan said. “We also saw fixed rate annuity product closures, and changes to income riders and closures.”
Branyan said insurance companies and distributors were taking different approaches to their annuity products in the midst of the COVID-19 turmoil.
“Some of these responses were probably determined by the diversity of their current product offerings — the better mix they have between fixed and variable products. The more diverse that is, the more options they have in the changes they can make and what products they can use to make those changes.”
In addition, Branyan said, the amount of business a carrier already has on the books, the risk profile of those products and the filing strategy they have used with those products also can impact what changes a carrier can make quickly and what changes it may have to refile.
Looking at fixed annuities, Branyan said CANNEX has seen product closing and credit rates drop — some down all the way to the minimum.
“We’ve seen deposit bands close, so if a product has a low band and a high band that offer different rates, we’ve seen a lot of the lower bands close and keeping the higher bands open,” he said. CANNEX also has seen guarantee periods close, so that multiyear guaranteed annuities that previously had anywhere from two to five crediting options have gone down to two.
The message from distributors of some annuity products Branyan said, is that “the rates are not where we want them to be, so we want you to remove the product from your platform because we no longer want to promote the product. When the rates do come back, we’ll let you know and we’ll turn it right back on.”
Now some carriers are returning the products to the market, Branyan said. There are some signs that the annuity market may be taking some baby steps back to life.
“We’ve seen products working their way back to being competitive,” he said. “We’ve seen crediting rates going back up but maybe not where they once were pre-March. And we’ve seen income rider rates going up on certain products. But interestingly, we’ve also seen them decrease on other products.
“Depending on the block of business and the different levers that the insurance company has to be able to pull will determine where they will tamp down to be competitive versus which product they are pulling back down during this time.
“We’ve also seen a carrier shut down a product and three weeks later come to us and say we’re ready to sell it again.”
Income Annuity Pricing Took Roller-Coaster Ride
Income annuity carriers also made changes to their products at an accelerated rate in March, said Amanda Dundas, CANNEX business analyst. “Carriers that only update, say, every 1-2 months saw an increase of up to 2-3 updates in the month of March alone,” she said. Forty percent of the carriers that list their products on the CANNEX exchange increased the frequency of their changes in March, while 18% made changes in April.
Single premium immediate annuities hit a sharp rate decline in the weeks of March 16 and March 23, Dundas said. At least three carriers spiked their rates downward and then the week of March 30, about half of the carriers had a spike upward.
“As we continued into April and May, we saw prices begin to follow their own path, with some ending up just under where they were in January and one actually higher than it was in January,” she said.
Deferred income annuities also saw their rates take a dramatic drop during the March 16-March 23 weeks compared with the months of December and January, Dundas said. But although DIA rates stayed relatively flat through May, she said, they are beginning to climb back to middle ground. The rates on most carriers’ DIAs haven’t returned to the highs they saw in December and January.
Except for changes in pricing, Dundas said she has not seen major COVID-19-related changes to income annuities “because carriers are mostly controlling this product through their rate updating, so they’re able to submit their rates and adjust to the market as quickly or as often as they need to.”