Low interest rates and stress-inducing market upheavals can make any investor, especially those nearing retirement, a bit shell–shocked. But there may be a cure. According to report from Conning Research & Consulting, indexed annuities are positioned for growthif carriers meet certain headwinds.
Scott Hawkins, (below right) vice president of insurance research and consulting for Conning in Hartford, Conn., recently authored a study entitled, “Indexed Annuities: New Growth Opportunities.” The report details the opportunities and challenges index annuity providers face.
According to Conning’s research, the number of potential annuity customers swelled in the past decade, yet insurers barely made a dent in reaching that sector. At the same time, market penetration by mutual funds grew.
Looking at population growth between 2005 through 2010, Conning researchers calculated that by the end of 2010, there could have been roughly 40.6 million annuity contracts in force. Yet the actual number was 32 million, “representing a possible $600 million in additional assets” under management, Conning concludes.
If the sheer number of prospective customers isn’t tantalizing enough for annuity carriers, then current market condition are prime for a product like indexed annuities, says Hawkins, who spoke recently with LifeHealthPro.com.
Low interest rates make traditional fixed annuities less attractive, and more conservative investors would rather see their accumulated retirement assets sheltered than battered in an equity market-based variable annuity, Hawkins says.
Therefore, consumers looking for a better than fixed interest rate return yet with less exposure to downside risk would gravitate toward indexed annuities, Hawkins says.
Many indexed annuities have also taken a page from variable annuities (VAs) and now offer guaranteed living withdrawal benefits (GLWB).
“That’s important because as we baby boomers start to get closer to retirement or enter our retirement phases, how we generate retirement income is increasingly important,” Hawkins says, “The GLWB is certainly an option that an investor might want to consider and so the product itself has become a bit more appealing relative to where it was five to six years ago.”