Annuities: They Like Us, They Really Like Us!

By Kim O'Brien InsuranceNewsNet

Commentary

Three Trends Favoring Fixed Annuities

The now infamous quote from Sally Fields when accepting her 1984 Oscar for Best Actress more accurately is: You like me. Right now! You like me.”

The right now is a bit of a qualifier noting the actor’s acuity for the frivolous nature of Hollywood – not unlike the annuity marketplace.

However, despite the dreary sales data from the most recent reports, Americans for Annuity Protection (AAP) is confident that the downward trend will turn around in 2018.

AAP arrives at this predication by noting that annuities are finally getting much-needed attention and appreciation from key regulators, policymakers and former annuity haters who have considerable influence in the marketplace.

Annuities are much in favor right now and should remain so for many years as their insurance guarantees become better known and accepted by key thought leaders. Three major trends show that the acceptance and understanding of annuities is growing and if we can keep regulation and compliance efforts in check, 2018 will be a strong year for fixed annuities.

Trend One: The U.S. Treasury Acknowledges the Importance of Annuities

Most industry participants know that last February, President Trump issued a memorandum directed the DOL to consider whether the Rule will: (1) harm investors; (2) result in marketplace disruptions; and (3) cause an increase in litigation and prices.

In October, President Trump’s Treasury Department gave a much needed boost to annuities when they issued a new report recommending that the DOL and the SEC engage with state insurance regulators regarding the impact of standards of care on the annuities market. The Treasury report states:

“because annuities are the only financial services product that can provide a guaranteed lifetime income stream, and because longevity risk (the risk of outliving one’s assets) has become a key retirement concern, annuities are an important contributor to the Core Principle of empowering Americans to save for retirement. Given the size and scale of the annuities market, 206 federal regulators should coordinate with the states in order to achieve consistent standards of conduct across product lines.”

Americans for Annuity Protection agrees with Treasury and believes that the administrative and regulatory obstacles to comply with BICE threaten to put FIAs out of business in the qualified marketplace and thereby deprive consumers of innovative products and access to annuity expertise.

Trend Two: Pension Plans Using Annuities to Meet Liabilities

Another trend influencing the acceptance and acknowledgement of the power of annuities is that more and more large employers are turning to insured annuities to bailout defined benefit plans.

Defined benefit plan sponsors can bank on one thing: uncertainty. They know it can’t be eliminated, but are fighting back by taking what they owe some participants off their balance sheets and having insurance companies take care of the payments – replacing uncertainty with certainty.

The annuity buyout strategy is becoming a popular way to strengthen what’s left of private employers’ $3.2 trillion pension plans. In February, Kimberly Clark Corp. announced its intent to purchase pension annuity contracts to reduce what it projects to owe 21,000 retirees by about $2.5 billion.

Other large employers purchasing annuity contracts in the past three years include Bristol-Myers Squibb, General Motors, Motorola Solutions and Verizon Communications.

A recent article explained an annuity buyout is when a pension plan shifts its obligations (or what it has promised to pay a participant) to an insurance company. The insurance company then provides annuities for the participants affected.

“It’s called de-risking because by pulling participants and their pension promise out of company plans, sponsors no longer bear the risk of having to fund those obligations and can create smaller, more manageable plans.”

If these large employers can see the economic efficiencies of annuities and their power of guarantees, it makes sense that the individual marketplace will have a new-found regard for their role in financial and retirement readiness.

Trend Three: Haters Becoming Lovers

Recently an investment publication interviewed financial planner Harold Evensky, an ardent proponent of the DOL Fiduciary Rule and consultant to the Department during the drafting process. Mr. Evensky is a professor of personal financial planning at Texas Tech University. In the interview he advised that neither he nor his firm actively uses deferred annuities.

However, Evensky concedes that a good use would be where asset protection is an issue – deferred and immediate annuities are a protected asset. He also acknowledges a new-found love for immediate annuities and DIAs.

He notes: “Years ago, I was quoted--my insurance friends remind me--saying, I wash my mouth out with soap before I talk about immediate annuities, because at the time the pricing made no sense. But an immediate annuity is a unique investment. It's the only one in which there is a potential extra return over and above dividends, interests, and capital gains, and that's a mortality return.”

When asked about the value of deferred annuities, he explains that for someone who is 60 today but, at 80, wants a “check every month the rest of (his or her) life, (an annuity) may end up being the most important investment vehicle.”

While Evensky is mostly favorable to immediate annuities and deferred income annuities (DIAs), the recognition of the insurance guarantees eliminating longevity risk is a critical element in a financial planning. As a winner of numerous financial planning awards, this recognition is very important to the annuity marketplace and for consumers seeking market protection and lifetime income.

Conclusion

Another quote from Ms. Fields (with apologies for adaptation) is equally apropos for the fixed annuity marketplace: "It took a long time not to judge annuities through someone else's eyes."

So, let’s ring in 2018 with a toast to all of the latecomers to the Annuity Lovers Fan Club. Next year will be a stellar year for fixed annuities as regulation settles down and some of the most unworkable aspects are eased or eliminated and as the acceptance and recognition of the benefits of owning an annuity grows and grows.

Kim O’Brien is a 35-year veteran of the insurance industry specializing in guaranteed annuities and life insurance. She is the current CEO of Americans for Annuity Protection and Founder of AssessBEST, Inc., a sales and compliance software system. Visit www.AAPnow.com or www.AssessBEST.com for more information.

This article is provided for educational and informative purposes only and not for the purpose of providing legal advice. Readers should consult with their own legal and compliance counsels to obtain guidance and direction with respect to any issue or question. Contact Kim at [email protected].