Indexes must evolve with inflation, rising rates, says NAFA panel – InsuranceNewsNet

InsuranceNewsNet — Your Industry. One Source.ā„¢

Sign in
  • Subscribe
  • About
  • Advertise
  • Contact
Home Now reading Next Generation Annuities and Indexed Products
Topics
    • Life Insurance News
    • Annuity News
    • Health/Employee Benefits
    • Property and Casualty
    • Advisor News
    • Washington Wire
    • Regulation News
    • Sponsored Articles
    • Monthly Focus
  • INN Exclusives
  • NewsWires
  • Magazine
  • Webinars
  • Free Newsletters
Sign in or register to be anĀ INNsider.
  • Exclusives
  • NewsWires
  • Magazine
  • Webinars
  • Free Newsletters
  • Insider Pro
  • About
  • Advertise
  • Editorial Staff
  • Contact
  • Newsletters

Get Social

  • Facebook
  • Twitter
  • LinkedIn
Monthly Focus
Next Generation Annuities and Indexed Products RSS Get our newsletter
Order Prints
July 1, 2022 Next Generation Annuities and Indexed Products No comments
Share
Share
Tweet
Email

Indexes must evolve with inflation, rising rates, says NAFA panel

Indexed funds must adapt to inflationary times.
By John Hilton

Many popular indexes supporting annuities and life insurance today might not work as well in a recessionary, high-inflation, and rising interest rate environment.

Those indexes underpin many big-selling products through a strong historical performance record. With the market on a strong 15-year growth run, most of the historical periods chosen for sales tools like illustrations show nothing but positive news.

Until recently.

Related stories

  • AHIP focusing on health care affordability and accessibility in 2023
  • CEO survey: Recession is the biggest worry in 2023

To summarize the situation the industry finds itself in, Sarah Garrity recalled a quote from the 1988 movie, "Hoosiers": "Don't get caught watching the paint dry," she said during a recent panel discussion at the National Association for Fixed Annuity's Annuity Leadership Forum in Washington, D.C.

"I think that's where we are right now in terms of product development and what we're thinking about the future, that it's not a time to stand still," said Garrity, director of national sales for the annuity distribution team within BlackRock’s Retirement Group. "A lot of custom indices were perfectly positioned for outcomes of the past. And they, quite frankly, don't address the challenge of inflation or the opportunity of rising rates."

During a conference session last month in Washington, D.C., a similar panel posited that rising rates could open the door for annuities sold with risk-controlled indexes. These types of products will utilize, for example, a heavy bond component in order to reduce the risk elements.

Garrity agreed that volatility controlled indexes are sure to increase going forward. "There is no protection without performance with inflation where it is," she said. "So I think that's the first thing that we're seeing in terms of how is this affecting product design."

Inflation hedge

Industry veteran Sheryl Moore noted the growth of indexes during a recent Wink, Inc. webinar. When Moore started Wink, a industry intelligence firm, 17 years ago there were a dozen indexes. Today, there are at least 150 different indexes, many of them proprietary indexes developed by major carriers.

Most of these indexes are a mix of different indexes, and other assets like bonds. A standard index, such as the S&P 500, has a lengthy history of returns, upon which a reasonable projection can be made simply by looking back. Most proprietary indexes do not have this type of history.

Phillip Brzenk is global head of multi-asset indices at S&P Dow Jones Indices. He told the NAFA audience that gold is a great inflation hedge to have in an index mix.

"Gold is positive year to date 3% or 4% last time we checked," he said. "So it's thinking about how can you incorporate something like that into a broader benchmark to actually have that exposure, actually have a more direct inflation hedge in your index."

Laurence Black is founder of The Index Standard, a firm that provides ratings on indexes. In a changing environment, indexes need to change as well, he said. Black used the analogy of a family who owns an SUV for when it's raining, a sedan for country driving and a convertible for casual outings in nice weather.

"In the past, what maybe you had was one index that could cope with one environment," he explained. "Unfortunately, we live in a much more complex world today. So I think what everyone needs to look for is more diverse packages. So if you think about an FIA, maybe what you want to see is different types of indices.

"Maybe what you want to see is a bunch of diverse indices that you can select that can give you those better outcomes."

Themed indexes more popular

The panel agreed that "themed" indexes are resonating with conscientious investors. The most common example is environmental, social and governance (ESG) investments. Clients are asking specifically for ESG options, Brzenk said.

"I'll tell you in the U.S., it's definitely not going to be as prominent as in Europe," he added. "In Europe, what we're seeing is you basically need to have an ESG tilt in your offering, otherwise it won't be looked at. I don't think the U.S. will ever get to that point, but we definitely see merit to exploring some of these themes in isolation."

An ESG investment is a stock that is rooted in values relating to environmental, social or governance issues, such as climate change, human rights, and data protection and privacy. For a stock to qualify as an ESG, it must undergo a rigorous evaluation process and adhere to certain principles set out by investment houses.Ā Ā 

If the stock passes the initial evaluation, it is then scored based on the MSCI ESG index. ESGs can fall under three different categories in the U.S.: AAA-AA: Leaders, A-BBB: Average, and BB-B-CC: Laggard.Ā Ā Ā This index rates organizations based on their exposure to ESG risks and how they manage those risks, and then assigns them one of the three categories above.

BlackRock had "a very successful launch" of its first ESG index within a fixed-index annuity last year, Garrity said. But it's not so much the themes as the basic thought and construction put into an index, she added.

"When we think about product construction, what it should come down to at the end of the day, is how can we create the best index that's going to create the best client outcome, regardless of a theme or a tilt?" she said. "At the end of the day, at least from our perspective, it really does come down to how can we create the most thoughtful index."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached atĀ [email protected]. Follow him on Twitter @INNJohnH.

Ā© Entire contents copyright 2022 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

Older

Despite recession fears, employers look to enhance benefits in 2023

Newer

Indexed product sellers see ‘attractive’ markets after Fed rate hikes

Advisor News

  • For some, nothing to fear from taking RMDs, professor says
  • Half of investors plan to work after retirement
  • Cetera to acquire Securian’s retail wealth business
  • Study: Education level should drive decisions on Social Security, annuities
  • Former California energy company exec given 5 years in prison for $15M investment fraud
More Advisor News

Annuity News

  • Investors scrambling to lock in rates propel annuity sales to record highs
  • North American and Annexus launch new fixed index annuity
  • Producers stew as insurers slow to process life and annuity applications
  • Substitute teacher wins massive lottery drawing in North Carolina. ā€˜Too good to be true’
  • Brad Rhodes: An annuity product many have never heard of
More Annuity News

Health/Employee Benefits News

  • Nearly half of all gig workers have no access to health insurance
  • California offers health insurance for $10 a month. The deadline is days away
  • Amazon announces service to deliver medications to your door. Here’s how it works
  • COVID-19Another COVID ā€˜new normal’: more Californians dying at home
  • Seven sentenced in conspiracy to defraud federal health insurance programs
More Health/Employee Benefits News

Life Insurance News

  • Cetera to acquire Securian’s retail wealth business
  • What does Curtis 'Cousin Eddie' Smith know in Murdaugh case?
  • Alex Murdaugh's murder trial starts with cellphones, bullets
  • Prosecutors, defense argue guns, bad acts in Murdaugh trial
  • Lincoln Financial Group offers new, fully automated life product, WealthAccelerate
Sponsor
More Life Insurance News
The time is 10:01:35pm test

- Presented By -

Top Read Stories

  • A Louisiana employer's health perks helped their workers lose weight. Here’s how.
  • US debt ceiling limit reached; Social Security, Medicare targeted
  • Former CEO of Texas beverage company sentenced to 10 years in prison for fraud
  • LETTER: FEMA flood insurance is all but worthless
  • Progressive online practices set example for agents, other carriers
More Top Read Stories >

FEATURED OFFERS

Grow life insurance sales in 2023 with middle-market clients

Tap a new source for sales and referrals with Allianz Life Insurance Company of North America.

Don't Miss ICMG 2023

When the success of your business depends on making the right connections, ICMG is the place to be.

How to Write For InsuranceNewsNet

Find out how you can submit content for publishing on our website.
View Guidelines

Topics

  • Life Insurance News
  • Annuity News
  • Health/Employee Benefits
  • Property and Casualty
  • Advisor News
  • Washington Wire
  • Regulation News
  • Sponsored Articles
  • Monthly Focus

Top Sections

  • Life Insurance News
  • Annuity News
  • Health/Employee Benefits News
  • Property and Casualty News
  • AdvisorNews
  • Washington Wire
  • Insurance Webinars

Our Company

  • About
  • Editorial Staff
  • Magazine
  • Write for INN
  • Advertise
  • Contact

Sign up for our FREE e-Newsletter!

Get breaking news, exclusive stories, and money- making insights straight into your inbox.

select Newsletter Options
Facebook Linkedin Twitter
Ā© 2023 InsuranceNewsNet.com, Inc. All rights reserved.
  • Terms & Conditions
  • Privacy Policy
  • AdvisorNews

Sign in with your Insider Pro Account

Not registered? Become an Insider Pro.