The Heat Is On In The Hybrid Annuity Market

Competition in the fast-growing hybrid annuity market is about to get fierce, the CEO of a life and annuity company said.

But all competitors are welcome, said Eric Steigerwalt, president and CEO of Brighthouse Financial, a big seller of hybrid annuities.

The hybrid annuity “is a great product for manufacturers, it’s a great product for distributors, it’s a great product for our clients - so growing that business, I think, would be great,” Steigerwalt said in an analyst conference call. “We welcome the competition. We know there’s going to be some in 2018.”

Hybrid annuities, sometimes called buffer or structured annuities, combine the elements of an indexed annuity and a variable annuity.

They protect, or buffer, contract holders from market downturns to a limited extent in exchange for higher caps on interest credited to the policyholder.

Insurers like hybrid annuities because they don’t come with lifetime income riders. Hybrid annuities also ease the capital requirements on the underwriter and are well suited to a low interest rate environment.

As sales volumes grow, regulators are also taking a closer look at hybrid annuities. Critics say the products carry high fees and suffer from other drawbacks.

Hybrid variable annuity sales in the second quarter rose 36 percent to $1.8 billion compared with the year-ago period. Hybrids account for about 7 percent of the entire variable annuity market, according to LIMRA Secure Retirement Institute.

The overall variable annuity market is expected to shrink by as much as 15 percent from last year’s sales of $105 billion, LIMRA forecasts indicate.

Voya to Enter the Market

On Wednesday, Voya announced it would launch its first hybrid annuity early next year. Analysts said it won’t be long before other companies join the stampede.

Allianz Life, Axa, Brighthouse Financial and Member Life Insurance Company’s CUNA Members Horizon also sell hybrid annuities.

Brighthouse inherited the Shield hybrid annuity portfolio from MetLife after Brighthouse was spun off from MetLife in August.

Thursday’s conference call was the first from Brighthouse executives as leaders of a standalone, public company.

In May, when Brighthouse was still an operating segment of MetLife, the companies announced that Wells Fargo Advisors would serve as initial distributors for the Shield Level 10 annuity.

“We've got other opportunities in many other distributors to either increase or start our Shield sales,” Steigerwalt said.

In July, Brighthouse launched Index Horizon, a white-label fixed indexed annuity sold by MassMutual Financial. About $70 million worth of Index Horizon was sold in the third quarter, Steigerwalt said.

Third-quarter operating earnings in Brighthouse's annuities segment were $355 million, compared to $247 million in the year-ago period.

Overall third-quarter annuity sales rose 8 percent to $1.1 billion compared to the year-ago period, due primarily to a 67 percent increase in sales of Shield annuities, Brighthouse reported.

Brighthouse Financial Beats Street

Brighthouse Financial on Wednesday reported a loss of $943 million in its third quarter.

On a per-share basis, the company said it had a loss of $7.87. Earnings, adjusted for non-recurring costs, came to $2.45 per share, the Associated Press reported.

The results beat Wall Street expectations. The average estimate of five analysts surveyed by Zacks Investment Research was for earnings of $2.15 per share.

The annuity and life insurance company posted revenue of $1.97 billion in the period.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].