Annuity Rates Plummet, Commissions Might Be Next

Annuity companies have been cutting their rates across all fixed products – some a few times in two weeks amid the crash in equity markets and Treasury yields, said an annuity analyst.

“I track about 80 annuity companies,” said Sheryl Moore, CEO of Wink. “As of yesterday, I had 75 rate reductions just since March 1.”

[Editor Note: Moore was speaking from memory and later corrected that Wink tracks 115 companies.]

Rates were as high as 3.5% and are now about 2.2%, Moore said.

Those lower rates are sure to slam fixed annuities without indexed features. Multi-year guaranteed annuities and other fixed products were already in the doldrums.

Sales were down by double-digit percentages in the first quarter for fixed nonindexed products, said Moore, who expects to release first-quarter data on Monday.

Expect A Rush To Safety

The interest-rate drop complicates what is expected to be a consumer rush to safety, just as there was after the 2008 crash. Since that recession, sales of fixed indexed annuities have boomed, with 2019 racking up $73 billion in sales, yet another record, Moore said.

But that demand will come just when carriers are cutting rates as they cast an anxious eye on their reserves because the companies will not be able to make much money on their investments. So, agents and advisors who were not in the annuity business during the last crash will not be familiar with working in market with plummeting rates.

Another complicating factor is renewal business. Much of annuity sales are 1035 exchanges from older products, but the new lower rates will make that difficult, Moore said.

“It's a really hard case to prove suitability to replace an in-force annuity like that,” Moore said.

“So, now it's hard for advisors and salespeople to justify a replacement or 1035 or even a surrender of annuities like that in today's interest rate environment.”

What’s Next?

The drop in equity prices and the collapse in Treasury yields are already having an effect on compensation.

“The next thing I anticipate seeing is reductions in premium bonuses,” Moore said. “Ultimately, reductions to commissions and possibly changes to repeat roll ups on income riders, although there aren't a ton of those left. So we're definitely seeing companies de risking or minimizing their exposure based on where the treasuries and market volatility is affecting rates in a very big way.”

Although premium bonus cuts might come soon, Moore said she did not expect to see commission cuts until the end of the second quarter, if they occur at all. Because it is early in the year, carriers are still in the business-building mode.

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].

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Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected].