Annuities have been disregarded, derided and dragged through the mud for many years now. But a comeback is likely right around the corner, according to one leading analyst.
A variety of variables are lining up to make 2018 and beyond promising for annuity sellers, said Jack Marrion, president of Advantage Compendium, a consultant to the insuranceindustry.
Marrion ticked off the reasons during a recent webinar hosted by the National Association for Fixed Annuities:
Rising interest rates. The Federal Reserve hiked rates to 1.75 percent last month, the highest since 2008. Chairman Jerome Powell projects three rate hikes total this year.
Market volatility. Factors such as trade wars and international conflicts are contributing to instability in the markets.
Bully pulpit. A phrase coined by President Theodore Roosevelt in 1900 is an apt description for the impact President Donald J. Trump is having.
Favorable regulation decisions. A recent court decision overturned the Department of Labor fiduciary rule, which made agents leery of lawsuits.
Running of the Bulls
If the stock market expansion reaches the summer months, it will become the longest bull market since World War II, Marrion said.
With each succeeding month, investors get more nervous, he added, knowing that the bears might be hiding around the next corner. Many of them remember the 2008-09 crash, when many Americans lost a sizable portion of their retirement savings.
"It’s not really an accumulation story that we’re talking about in 2018, it’s a protect-what-you’ve-accumulated story," Marrion said. "And that’s the story that people are going to be listening to as the market keeps getting choppier and choppier."
Fixed indexed annuities, in particular, are a great product for maintaining growth while offering protection from any losses.
Otherwise, bond returns have been hurt by rising interest rates. A $100,000 U.S. Treasury bond purchased in August 2016 is worth just $86,000 if sold today, Marrion noted.
"We have a rising interest rate market and in Finance 101 you learn that when interest rates go up, the value of existing bonds goes down," he added.
The Fed could hike rates another 2 to 3 percent in the next couple years.
"The value of existing bonds are going to get hammered," Marrion said. "Maybe bonds aren’t the best place to be if you’re trying to protect what you’ve accumulated."
While interest rates and the rise and fall of the stock market are general economic trends, the president's tweets are quite another thing. Pointing out that he is not making a political statement, Marrion said Trump's use of the bully pulpit has implications for the markets.
"Most presidents are very shy about saying anything that will affect the financial markets," he said. "The current president is not reticent about expressing his opinion, even if it might affect the market. We have a bull market in its 10th year and it’s sensitive to nerves."
Finally, the Department of Labor fiduciary rule is on life support and that is good news for annuity sellers. On March 15, a New Orleans appeals court tossed out the DOL rule. The government has until the end of April to appeal, and experts are saying the department won't.
With the DOL rule liability sidelined, agents can sell annuity products without as much anxiety, Marrion said.
"A number of agents I spoke to said last year that they weren’t selling as hard, they weren’t working as hard, and they weren’t meeting with people as much as they used to because of their confusion and uncertainty over what might happen with the DOL," he explained. "Agents have heard that all-clear siren. Trouble is fading away. You can come out of the shelter and do business again."
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].