LIMRA Calls Them ‘Registered Indexed-Linked Annuities’

Structured and buffered VAs have a new name: registered indexed-linked annuities.

The new terminology was adopted following the introduction of annuities marketed as buffered and indexed-linked over the past few years, said Todd Giesing, annuity research director for LIMRA Secure Retirement Institute.

Indexed-linked annuities will be included in overall VA sales numbers, he said. Indexed-linked annuities use indexes as a measuring stick with which to credit contract holders, hence the phrase “indexed-linked.”

Some indexes such as the S&P 500 are widely followed, while other custom indexes not so much.

The product category has grown quickly, and sales rose 25 percent last year to $9.2 billion compared with 2016 as consumers seem comfortable with sharing the risk of market losses in exchange for a higher potential return.

Indexed-linked annuities are selling well in banks and independent broker dealer channels where there’s a mix of clients with appetite for some risk and some protection, he said.

“With low interest rates, it’s hard to find yield with traditional fixed products so this gives people the opportunity for more upside potential,” Giesing said.

Indexed-Linked Must Haves

Annuity products with a shared downside risk and a ceiling in the design linked to an index qualify as a registered indexed-linked annuity.

Most index-linked annuities sit on a VA chassis and come with or without subaccounts, but some index-linked annuities sit on a registered fixed annuity chassis as well, Giesing said.

AXA, Allianz, CUNA, Brighthouse, Great American, Great West and Lincoln are active in the indexed-linked annuity market.

Some indexed-linked VAs come with a buffered structure where the insurer takes on a percent of market loss before the client assumes the rest.

Others work in the opposite way where investors hold the risk up to a threshold before the insurance company assumes the loss beyond the threshold.

In exchange for assuming a part of the risk, indexed-linked VAs offer contract holders more potential for gain than they would get in a fixed annuity, Giesing said.

Investment-only VAs don’t qualify as indexed-linked because they don’t provide the same level of protection and aren’t geared toward generating income, he said.

Sales on the Rise

First quarter sales of indexed-linked VAs rose 4 percent to $2.2 billion compared with the year-ago period, LIMRA reported.

The indexed-linked product category now makes up about 9 percent of the retail VA market and is helping boost overall VA sales growth.

Overall VA sales are expected to rise 0-5 percent in 2018, compared with 2017, LIMRA SRI reported.

VA sales last year fell 9 percent to $95.6 billion compared with 2016.

As companies enter the indexed-linked market growth is expected to continue but will likely slow from a percentage and dollar standpoint compared to the banner year they had in 2017.

“They are still on an upward trajectory,” Giesing said.

Insurers also participate in the structured settlements and structured notes markets, but these markets have nothing to do with the structured annuity market.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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