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Life Health > Annuities

The Future of Annuities

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What changes are in store for the annuity market in 2010? Two leading experts share their outlook in Part 2 of a preview to ASJ’s complete insurance market outlook, which will appear in our upcoming January 2010 national print edition. To read part 1, click here.

The market outlook for fixed annuities (FAs) will continue to be very strong throughout 2010. 2009 has seen a strong sales performance in all fixed annuity products; book value, market value, indexed, and income. The first three quarters of 2009 showed book value and market value-adjusted FAs were growing 50 percent over 2008, while indexed product sales grew 20 percent over 2008.

Income annuities will begin to increase as new product designs add important features such as return of premium and long term care. NAFA spoke at a recent symposium for income annuities, and there is a growing interest outside the independent distribution and banking channels to learn more about utilizing guaranteed income products for customers concerned with outliving their income or not having enough time to recover from another market drop. It seems that other channels are just now discovering what independent producers have known all along.

Despite the uncertainty created by the SEC’s Rule 151A, consumers recognize the benefits of indexed annuities as a result of producers’ efforts to educate and inform interested clients. NAFA sees that energy continuing throughout 2010. Additionally, suitability and disclosure enhancements will continue to evolve as states, the NAIC, and individual carriers incorporate new standards. Research continues to show that the overwhelming majority of fixed annuities are purchased by middle-class Americans – and eight out of 10 have annual income of less than $100,000. Given the uncertain economic outlook, more people will continue to look for safety and protection from market fluctuation and uncertainty – and only one product meets those goals while also providing guaranteed income, minimum interest, and liquidity features for emergencies – the fixed annuity.

Kim O’Brien, executive director, National Association for Fixed Annuities

After several years of watching riders evolve, with many becoming more complicated, the industry is making a return to simplicity – benefitting the consumer through simplified terms that help deliver a maximum benefit to the investor. Simplicity helps agents regain the trust and confidence of clients which, over time, may lead to increased sales.

Many of the Insured Retirement Institute’s members have already begun to enhance their suite of optional benefits, with several carriers introducing new living benefit riders. For example, in many cases, when clients elected an optional benefit rider, they may only invest in selected or certain allocation choices. With some products, clients can customize their own asset allocation mix, within limits, using the different options. This kind of customization is gaining traction, and will likely continue to evolve.

Product development is also expanding. In specific, one carrier’s new product represents a complete departure in design and cost. By removing some of the complexities and simplifying the product, they have the opportunity to expand the reach of variable annuity distribution to many of those who have been previously hesitant to include an annuity as part of their retirement portfolio. And, through that simplicity and, ultimately, trust, products such as this help give annuities a good name again.

In today’s environment, and with the many notable evolutions taking place within the industry, the value of a guarantee has never been greater. With the dramatic declines in the financial markets, the value of insured investment strategies has never been more apparent, helping investors achieve a financially secure retirement.

Cathy Weatherford, Insured Retirement Institute


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