No Flight To Safety Expected In This Downturn

Annuity sellers might see a bump in sales from consumers fleeing the stock market after the latest gyrations, but they probably won’t see the rush to safety that they witnessed after the 2008 crash, said an annuity analyst.

“Anytime we see a drop in the market, we see an increase in indexed annuity sales,” said Sheryl Moore, president and CEO of both Wink Inc. and Moore Market Intelligence. “But I don’t think we’re going to see that panic unless the markets continue to exponentially drop.”

After the 2008 crash, the fixed index annuity message of safe principal plus a potential upside appealed to stock-shocked consumers. In fact, some fixed index annuity companies were so swamped with sales that they had to stop selling for a time to ease the pressure on their reserves.

Why is it different this time? Three reasons, Moore said.

• The market has not reached anything close to the depths of loss investors suffered in 2008.
• The 2008 crash was the second market spasm within a short period, making investors more nervous. In 2000-02, the market also took a dive.
• More available capital. After the 2008 crash, money was tight and many carriers backed off aggressive annuity sales.

It is still too early to see what the market is up to this time.

The Dow Jones fell 6.6 percent in August, as nervous investors sold heavily. Stocks have bounced up and down in the days since.

Meanwhile, the Department of Labor continues to push its fiduciary only rule for anyone dealing with money in a retirement fund.

A Thursday subcommittee hearing is planned by the House Financial Services Committee. The hearing will feature five speakers discussing the impact of the DOL proposal on retail investors, retirement savers and the economy.

Annuity carriers sold nearly $12.3 billion in fixed index annuities (FIAs) in the second quarter of this year, the second-best quarter since the product was introduced in 1995, Wink said.

“I really think indexed annuity sales are going to keep going up,” Moore said, citing both low interest rates and market volatility for boosting annuity prospects.

In the aftermath of the 2008 market crash, fixed index annuity sales hit quarterly records in consumers' flight to safety. The lure of tax-deferred income growth and safe, if smaller, returns with protection from losses, made fixed income annuities a market crash destination for investment funds.

According to the Government Accountability Office, the New York Stock Exchange Composite Index declined by a total of 55 percent from November 2007 to February 2009.

With interest rates hovering near zero, Moore said, CDs and treasury bonds are no longer a better option for guaranteed gains. Otherwise, money is not as tight now as it was in the past, she added.

“Banks are lending money more easily than they were in ’08 and ’09,” Moore said.

The industry as a whole has a much better idea on pricing for indexed annuities in a strong market, she said.

By early 2012, Hartford Financial Services Group, Sun Life Financial Inc. and John Hancock Financial Services Inc. were among insurers who restricted sales or left the annuity market altogether after a post-crash rush to safe money threatened their profit margins.

“Annuities are getting a chance they never would have gotten before,” Moore said. “The indexed annuity pie is going to grow much larger.”

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].

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