Many forces are affecting todays fixed annuities, including federal budget deficits, equity markets, competition and more, but “interest is the principal driver,” noted Noel J. Abkemeier at the annual meeting of the National Association of Fixed Annuities in Orlando.
At the meeting, NAFA adopted a new tagline”working for a secure future”to signal its now broader focus. The Milwaukee-based organization was originally an equity index annuity trade group, but it has since extended its purview to all forms of fixed annuities.
Abkemeier is consulting actuary in the Williamsburg, Va., office of Milliman Inc. He and other speakers addressed many trends that have been impacting the fixed annuity business in recent years. National Underwriter obtained copies of talks given at the meeting.
The picture speakers drew was one of challenge, response and opportunity.
For example, in his remarks, Harry N. Stout, president and CEO of LifeStar Financial Network, Salt Lake City, noted that “the volatility of interest rates and their precipitous drop, along with the decrease in corporate spreads, has created a situation where insurance carriers cannot support their fixed rate products and make targeted returns.”
As a result, carriers have had to take several “significant” actions, said Stout, who is also deputy CEO of Fidelity & Guaranty Life. These actions include those shown in the box on this page.
In turn, these events have caused “significant producer and consumer concerns and confusion,” Stout said.
To show the range of the changes, Stout, in one example, compared the advantage that fixed annuity interest rates had over bank certificates of deposit in 2004 and 2003, based on figures from bankrate.com as of March 26, 2004. On the 5-year contract, “the annuity rate advantage over CDs has shrunk by 30 basis points, or 42%,” in 2004 compared to 2003, Stout said.
Interest affects not only crediting rates on annuities, said Millimans Abkemeier, but also the investment choices of the annuity companies, profit targets, commissions and other business factors.