Annuities went through a difficult year in 2020 and it was reflected in the news coverage.
The pandemic effects, combined with the persistent low-interest-rate environment and ever-changing regulatory landscape, made annuity sales a difficult proposition for many. The good news is the need remained strong among Americans who received a lesson in the value of financial protection during the COVID-19 downturn.
In this January story, Prudential plc, the parent company of Jackson Financial, announced that it would pursue the separation of Jackson in the second quarter of 2021 through a demerger, whereby shares in Jackson would be distributed to Prudential shareholders.
The demerger, also known as a spin-off in the U.S., is subject to shareholder and regulatory approval and would lead to a significantly earlier separation of Jackson than would have been possible through a minority IPO and future sell-downs, the company said in a news release.
At the time of the spin-off, Prudential said it intended to retain a 19.9 percent interest in Jackson that it will fully divest over time. The insurer announced plans for a Jackson National IPO in August 2020.
In this February story, Prudential discussed plans to halve the share annuities contribute to its earnings, a downsizing the insurer aimed to accomplish through sales, reinsurance deals and expiring policies.
Charles Lowrey, chairman and CEO, said the company strategy is centered on Prudential's $750 million cost savings plan.
"Over the next three years we plan to reallocate between $5 billion and $10 billion of capital with the intention of doubling the earnings contribution of our higher growth businesses and halving individual annuities," he said.
The Prudential plan is to reduce annuities to 10% or less of company earnings, Lowrey said.
In this column, financial guru Tom Hegna said annuity sellers should focus on retirement happiness.
Research shows that people with a guaranteed lifetime income source tend to be happier and live longer, Hegna wrote. The Wall Street Journal once published a headline “The Secret to a Happier Retirement is Friends, Neighbors and a Fixed Annuity.”
The article went on to say that the happiest people in retirement were those who were surrounded by friends and had sources of guaranteed lifetime income.
After all the analysis is done on rates, fees and performance, there is really one key metric that means more than the others – patience.
Great returns don’t mean much if investors motivated by emotion or misplaced confidence in their market timing skills jump in and out of funds. When investors jump, those small gaps widen to large gulfs between what they accumulate and what they could have amassed for retirement.
Advisors have been telling clients that for decades, but now new research can show how that is particularly true when investors use variable annuities. That data comes from an annual survey conducted by the marketing research firm, Dalbar, which has conducted the study for 27 years.
Integrity Marketing Group, the nation's largest independent distributor of life and health insurance products, acquired Brokers International in March in a blockbuster merger of industry giants.
As one of the oldest and most influential life insurance, annuity and wealth-planning organizations, Brokers International supports thousands of agents, agency partners and financial advisors who provide life insurance and retirement solutions to Americans, Integrity said in a news release.
As part of the transaction, Mark Williams, president and CEO of Brokers International, will become a managing partner with Integrity. Financial terms of the transaction were not disclosed.
In June, the Secure Retirement Institute released data suggesting that retirees who own an annuity are more confident than non-owners that their savings and investments will not run out if they live to age 90 (69% versus 44%).
An annuity can create a lifetime income stream, mitigating the potential longevity and market risks consumers may face in retirement. This lifetime income can supplement other sources of retirement income, such as pensions and Social Security, to cover essential and healthcare expenses in retirement, which represent more than half of retirees’ annual expenditures.
SRI research found that demand for lifetime income will become greater in the coming years. Today, 62% of retirees believe income from Social Security and pensions will cover their basic living expenses but less than half (39%) of non-retirees feel the same. Why? Less than one quarter of non-retirees have a pension and therefore would have to rely on Social Security and income generated from their savings to make ends meet.
The year began with several states moving quickly to add a best-interest annuity sales standard to its regulation of insurance products.
In February 2020, the NAIC adopted a model law that articulates a best-interest standard through the following four obligations: care, disclosure, conflict of interest and documentation. With the outbreak of COVID-19, states were slow to adopt the model in the months that followed.
The NAIC began lobbying state officials over the summer 2020, and began work on a series of FAQs to help facilitate adoption.
When advisors talk to their clients about annuities, the conversation usually centers on creating guaranteed lifetime income. But many clients might be more responsive to annuities if advisors turned the conversation around to discuss ways annuities can help clients spend more money in retirement.
Harry Stout, founder of the FinancialVerse Organization and author of several books on annuities, discussed this philosophy in a May story. Stout spoke during a webinar sponsored by the National Association for Fixed Annuities.
“I find that many people relate better to lifetime spending than they do to lifetime income. It gets back to our culture,” he said.
Lifetime income is still an important issue to discuss with clients, however. Stout pointed to a study by CANNEX and Greenwald Research that showed consumers’ No. 1 fear about retirement is running out of money.
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.