MYGA Magic: Why These Annuities Are Busting Out

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Although low interest rates have been bedeviling annuity sales, multi-year guaranteed annuities had their best quarter in at least five years.

Sheryl J. Moore admitted being stunned by how well the products were doing as her staff at Wink Inc. compiled the quarterly data.

“Over the month-long period that we were getting the sales data, different people on my sales reporting staff were yelling out, ‘So and so's MYGA sales are up X thousand percent!’” said Moore, president and CEO of Wink and Moore Market Intelligence.

She was sure the data would even out once all the reports came in, but sure enough, MYGAs showed an astounding leap in the third quarter, with $16.6 billion in sales, a 32.9% when compared to the previous quarter, and 69.7% when compared to the same period last year. (MYGAs have a fixed rate that is guaranteed for more than one year.)

One reason for the jump is growing competition in the space, which is leading to more appealing products, with some carriers offering higher than average rates.

“We had quite a few insurance companies that were offering some really competitive MYGA specials during the quarter,” Moore said. “I think consumers did say, ‘Well, I get it, 4% for five years is a slam dunk, of course I'll do that.’”

But the other factor Moore mentioned was an important one in the social distancing era in which salespeople are struggling to sell complex products remotely. That makes the CD-like MYGAs much simpler to explain than fixed index annuities.

“I think we're seeing is kind of a return to the late '90s mentality where a lot of insurance salespeople, particularly those who are not securities licensed registered reps are saying, ‘Hey, MYGAS are easy to sell,’” Moore said. “People are looking for principal protection right now and relatively speaking, MYGAs are attractive.”

During the recession following the 2008 crash, “zero is the hero” was the shorthand marketing message for FIAs as consumers reeled from plummeting equities prices. But Moore said that message does not play well in these days of a booming stock market.

MYGAs protect principal while providing a more attractive interest rate than CDs, which is a classic annuity sales point. Moore was still surprised at how broadly MYGAs replaced FIAs for agents.

“I was anticipating that by the time we released the report, MYGA sales would have been very good,” Moore said. “It's somewhat surprising to me though that they did really quite a bit better than indexed annuities, just because people really like that upside potential story. In a way, index annuities do compete for the same dollars that fixed annuities do. Although truly, if somebody is trying to gauge their client's risk tolerance, it's an easy choice whether you should be suggesting an indexed annuity or a MYGA.”

 Structured Annuities Spike

Structured or registered index-linked annuities are also doing a star turn lately, racking up another increase in a long string of up quarters, with $6.2 billion in sales in the third quarter, up 38.1% over the previous and 30.4% as compared to last year.

The rate of increase in structured annuities is outpacing FIAs during their period of greatest gains, Moore said. In a sense, structured annuities take FIAs message of low loss potential and boost it with the possibility of a greater gain with subaccounts or an external index.

Even Moore bought a structured annuity recently, even though she is a cautious consumer, she said.

“I really feel like I'm not comfortable losing money, but my advisor has been kind of wearing me down over several years,” Moore said, adding that her advisor positioned the product next to FIAs. “ 'You're not happy with indexed annuity potential right now. Why don't we talk about this other option?' And truthfully speaking, I've gotten some fantastic gains on that structured annuity so far.”

The rest of the annuity market did not fare as well in the third quarter, although the segments did better than the dismal second quarter. Total deferred sales were $54.2 billion, up 18% over the previous quarter but down 1.1% year over year.

“Sales are up for all product lines from last quarter, but sales compared to last year are still down double-digits for most annuity types,” Moore said when the report was released.

Non-variable deferred annuities: Sales were $30.9 billion, up 19.5% over the previous quarter and up 7.1% when compared to last year, gains largely fueled by MYGA sales.

Fixed index annuities: $13.7 billion, up 7.5% over the previous quarter, down 26.1% compared to last year.

Traditional fixed annuities: $488.57 million, up 14.7% over the previous quarter, down 32.7% when compared to last year.

Variable annuities: $23.2 billion, up 15.6% over the previous quarter, down 10.4% compared to last year.

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 smorelli@innfeedback.com.

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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 steve@innemail.com.