How might a redefined fiduciary standard impact annuity sales? Will carriers continue the trend of offering buyouts to variable annuity holders? Five conjectures for the year ahead.
1. It’s all about the guarantees.
Consumers are looking for retirement products that provide living benefits. “It’s all about the guarantees — the company standing behind those guarantees and what those guarantees are,” says Douglas Dubitsky, vice president, product management and development for retirement solutions, Guardian Life Insurance Co. of America. However, with variable annuity carriers having a difficult time managing risk in a low interest rate environment (see #2), the popularity of fixed indexed annuities, as well as single premium immediate annuities (SPIAs) and deferred income annuities (DIAs), are on the rise. There’s no doubt the public wants guaranteed lifetime income, but…
Image: Lea Wait takes a moment to relax in front of her recently installed wood stove at her home in Edgecomb, Maine, on Wednesday, Jan. 23, 2008. Some retirees coping with the sliding economy save money by lowering their thermostat and heat with a wood stove. After four challenging economic years, retirees’ top priority is establishing a guaranteed lifetime income. (AP Photo/Pat Wellenbach)
2. Variable annuities: Not living up to the promise?
Three carriers — AXA, Transamerica and Hartford — all offered buyouts to VA holders. Basically, they asked policy owners to exchange either their living benefit rider or death benefit for a larger account amount. Will more companies that have these “legacy” VAs on the books do the same? How many owners will actually take them up on this offer? “Is it a good deal or not? Most likely it’s not if they are trying to buy someone out of a guarantee,” said Kevin Loffredi, vice president of annuity solutions at Morningstar.
Image: The TransAmerica Pyramid, foreground, and the Bank of America building, back, in downtown San Francisco, are shown during a power outage, Tuesday, Dec. 8, 1998. A citywide blackout cut off power to more than 370,000 customers, halting trains, planes and cars, closing shops and schools and leaving pedestrians scrambling. (AP Photo/Paul Sakuma)
3. Will annuities be kicked off the fiscal cliff?
With fiscal cliff negotiations ongoing in Washington, D.C., all tax expenditures are on the table, says Judi Carsrud, director of Federal Government Relations for NAIFA. She couldn’t say what the chances are of that happening at this point, but if the tax deferred nature of annuities is altered, the impact on the industry would be “dramatic,” she says. Others, however, are more optimistic Congress will preserve the tax advantages of retirement savings products.