Building success on a history of experience — With Eric Henderson

Eric Henderson, president of Nationwide Financial’s annuity business segment, has seen the annuity business grow and change since 1985.

He began his career at Nationwide as an actuarial assistant in 1985 and spent much of his career as an actuary. He climbed the ladder at Nationwide and now is responsible for the financial health and strategic direction of Nationwide’s individual annuity business, which represents about $100 billion in assets.

In this interview with publisher Paul Feldman, Henderson discusses how to establish guaranteed income streams and create a path to a secure retirement.

Paul Feldman: You’ve had an incredible career with Nationwide, having worn many different hats during that time. Tell me a little bit about your career at Nationwide and some of the biggest changes you’ve seen.

Eric Henderson: I started with Nationwide in 1985. That’s a long time, and I certainly have seen a lot. I came to Nationwide out of college and went into their actuarial program. I spent about a year in the life insurance business and then moved into the annuity business, and I’ve been in the annuity business ever since.

At the time I was an actuary with annuities, I was one of two people in the annuity actuarial department — now there are probably 50 or 60 actuaries in that department. But that was very helpful to me because I got to experience everything. That gave me a good understanding of how the annuity business works — the pricing, underlying financials, things like that.

Then I moved into the product development area and ran that for a time. I served as the chief financial officer of the annuity business for a couple of years until I was selected to lead the annuity business in 2007 — right before the financial crisis. From 2012 until 2019, I ran the life insurance business, but for most of my career at Nationwide, I’ve been leading the annuity business.

Feldman: Tell me about the path that Nationwide has taken over the years. You’ve certainly seen a lot of growth and changes.

Henderson: People think of Nationwide as a property/casualty company. That was our roots. We started off there — 2026 will be our 100-year anniversary. And we used to be Nationwide Insurance agents. And so, we were direct-to-consumer. Whereas, on the financial side of things, we’re really working through intermediaries.

And as you might remember, Nationwide took the financial services part of the company and spun off a little less than 50% of it to go public back in 1997. That was helpful for us because the beauty of being a mutual company is that you get to look at the long term. You don’t have to look at those quarterly earnings. Being public for the handful of years that we were public helped us do a much better job in that financial discipline mindset.

None of the company is public right now. So we can say, “OK, I have this financial discipline mindset that public companies need to have, but I have this long-term mindset that mutual companies can have.”

I think that has allowed Nationwide Financial to blossom and grow over the past two decades, so that now we have a strong property/casualty company and a strong financial services company as well. Financial services is the growth engine and the profit engine of the enterprise. You might not think that if you only look at our TV ads, which are more consumer focused.

We’ve had a great run in life insurance. I ran Nationwide’s life insurance segment from 2012 to 2019. And in 2012, we were the 33rd-largest life insurance writer. In 2012, I brought the teams together and asked, “What do we think about where we can grow?” And one person said, “Why don’t we see if we can be in the top 10 by 2020?” That would have been within eight years. Almost everybody in the room said, “Well, that’s not possible. You can’t go from 33rd to 10th in eight years.” And two years later, we were number 10.

Anytime you have that type of success, it’s a combination of skill and luck. There’s a lot of stuff that we did that enabled us to do that. I think today we’re No. 6 in life insurance. We got to No. 5 in annuities in the first quarter of 2023. We’re the No. 1 writer of 457 public sector pensions.

We’re the top writer of 401(k)s. All these things have grown in the past number of years because of the culture of the mutual company with the experience of being a public company for a period of time. I think that is something that has been a lot of fun to be a part of, and the culture of working together across life annuity and retirement has been fun as well.

Feldman: So, you came into the annuity space during a tumultuous time, and right now is a tumultuous time, but also the best time for annuities. How do you see the market right now?

Henderson: It’s absolutely a great time for annuities. And when you think about where we are today in 2023 and then think about where we were three years ago — we often forget that only three years ago, we were talking about whether the 10-year Treasury would go below zero. Now we’re looking at short-term rates above 5%. So, it has been a tumultuous time.

Equity markets have been fairly good recently, although they have been fairly volatile as well. We have seen a major shift in terms of traditional fixed annuities, which have been the biggest benefactor of the big increase in interest rates. These are simple products that compete with certificates of deposit in some sense. That part of the business has really taken off.

We’ve sold a lot of annuities and had to do some pivoting with the big surge that happened last year.

But we remain extremely bullish on the fixed indexed business, on the variable business, the registered index-linked business. One thing that’s important for us is to have that diversified portfolio, because when you have these tumultuous times, being able to move back and forth between different products is important.

Diversification is important from a new business standpoint. Products fall in and out of favor in terms of what’s sold. But diversification also is important from a risk management standpoint.

Having fixed annuity business on your books versus variable annuity with lifetime income guarantees — very, very different risk profiles. In terms of how you manage the risk of the business, which is important to us, diversification is important there as well.

Feldman: What has affected your product design in the short term, and what is impacting where you’re going in the future?

Henderson: From a product design standpoint, it’s more about tweaks. One of the things that happened a few years ago was that we moved toward shorter and shorter kinds of guarantees.

If you think about the fixed indexed space 15 or 20 years ago, those were long 15-, 20-year surrender products, moved to 10 years, moved to seven years. Now you have some products with five-year surrender periods and some with three years. Some of that stuff just changes, and you must adjust to that.

The other thing in the fixed indexed space is the indices. Some firms just straight commoditized indices like the S&P 500. Now there’s a more custom index that will add some nuances to it.

And neither one’s right or wrong; they just provide different value propositions.

As interest rates move up, it allows you to do different things. When interest rates were really low, you had a lot less flexibility. With higher rates, you have more options in terms of how you hedge and what benefits you give them and how you split those benefits. I think that’s the biggest thing in terms of product design as the markets change.

Feldman: What is your distribution model right now?

Henderson: Our strategy involves diversified products and also diversified distribution. We started out as a variable annuity company with independent brokers. We then moved into the wirehouse space. Then we moved into the bank space over a number of years. About 10 years ago, I saw the fixed indexed annuity space growing and changing back from something that I previously thought was not a good customer value, to becoming a much better customer value. And at that point I said, “We could build this from scratch, and it would take a lot of time and a lot of money, but instead, how about we partner with somebody?” At that point, we were not in the independent marketing organization space, and we decided to partner with Annexus to do that.

They knew the space well, they knew product, they knew marketing, they had relationships. So Nationwide and Annexus spent a couple years talking in depth, and then we pulled that trigger and decided to move forward with that. That got us into a completely different space, the independent marketing organization channel where we are doing tremendously well right now.

Then, as you’re aware, a number of years ago we bought Jefferson National, which is really the leader in the registered investment advisory space, to really get into that space as well. So now we’re pretty much across the board in any of the different types of broker-dealers, within the IMOs, within the RIAs. And all of those channels are important to us.

Feldman: That diversification strategy makes a lot of sense. Tell me a bit more about how RIAs fit into that.

Henderson: The RIA space is one that’s really interesting to me because outside of annuities, that space is far and away the fastest growing.

You’re getting more and more RIAs. To me, this is an industry issue of how do you get folks out of the wealth accumulation mindset and into the income mindset? How often do you ask, “What’s the present value of my income?” You never think that. You’re just thinking, “How much do I get paid each year?”

And you get to retirement and suddenly you have this big lump sum. What does that even mean? Most people don’t really understand it. If I have $500,000, is that a little? Is it a lot? It sounds like a lot, but is it going to last for 20, 30, 40 years? Just like you’re thinking about an annual income while you’re working, you should think about an annual income in retirement as well.

And that’s what annuities do, and that’s really the value.

I think it’s hard for folks who have been focused solely on accumulation and wealth building to get into this income space. Now, a lot of advisors are good at it, and they do much better financial planning and focus on that as well. But I think the industry must do a better job of asking how we build a portfolio that’s going to give people that income.

Feldman: How do we as an industry communicate that better? I think the RIAs are a little bit different because, as you mentioned, it’s about accumulation and not decumulation. Often, retirees are not touching their nest egg, and they’re not living the life that they should be or could be.

Henderson: You’re exactly right. And there are good RIAs that do it. In every channel, there are good advisors who do that. You could get into the situation of the money not lasting. But then the reverse situation, which you alluded to, is that you don’t spend as much money as you could because you’re afraid that your money might not last.

I think the thing that we’ve done, that others in the industry have done, is to try to get people to focus on core or essential expenses versus other expenses. You have to pay for your food, you have to pay for housing, you have to pay for your medical expenses. There are certain things you must have. And there are other things that are nice to have. Vacations, entertainment or things like that.

Whatever’s truly essential, you need to cover that with some sort of guaranteed income, whether that’s Social Security, a pension or an annuity. Those are the three ways you can get some sort of guaranteed income.

One of the ways that could help is in the 401(k) space, the retirement plan space, because now we’re seeing more and more of these guarantees making their way into retirement plans.

Feldman: Are there some regulations that are helping in this regard? What can we do as an industry to really push it further?

Henderson: I think the SECURE Act and SECURE 2.0 are steps in the right direction. Another is the auto enrollment in 401(k)s. So that doesn’t force you to enroll, but the default is that you enroll. You can choose not to enroll. And then, auto escalation. So, if you start at 3% of your salary, they’re going to bump it up to 4% or 5% or 6% over time. Again, you can opt out of it. It’s not a mandate, but it’s an encouragement. It’s a way to kind of say, “This is the default.”

I think it would be great if the government could do something like that as well in terms of income. There should be some sort of default such as, “Hey, if you don’t choose otherwise, you’re going to have a portion of your 401(k) that has some sort of an income guarantee on there. You can always choose to opt out of that if you want to.” But I think you can get people thinking, “This is the right thing to do.”

And a lot of employees might not have a financial advisor. They may not have enough money to attract a good financial advisor, so how do you help them? From a government standpoint, how do you encourage people? That would be one way to do it, to put some defaults in there where some portion of your 401(k) should be defaulted to some sort of a guaranteed income stream.

Paul Feldman started the website InsuranceNewsNet in 1999, followed by InsuranceNewsNet Magazine in 2008. Paul was a third-generation insurance agent before venturing into the media business. Paul won the 2012 Integrated Marketing Award (IMA) for Lead Gen Initiative for his Truth about Agent Recruiting video and was the runner-up for IMA's Marketer of the Year, a competition that includes consumer and B2B publishing companies. Find out more about Paul at www.paulfeldman.com.