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Annuities: 5 things to expect in 2014

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Will fixed indexed annuities continue to be the rock stars of the annuity world? Has private equity’s appetite for fixed annuities waned? Will the Glenn Neasham case ever be over?

Here are five issues to look for in the year ahead.

1. Will fixed indexed annuities continue their sales hot streak?

In 2013, fixed indexed annuities may have felt a bit like the wallflower that finally got asked to the prom. After years in the shadow of their more popular peers, variable annuities, fixed indexed annuities started to rack up record sales as 2013 came to a close. Meanwhile, variable annuities slipped in sales and were left to shuffle their feet at the punchbowl, waiting for more dance partners. Perhaps too much can be read into quarter-by-quarter peaks and valleys in sales, and VA sales dipped only slightly, but the question the industry may need to monitor in 2014 is whether fixed indexed annuities can still capture the fancy of retirees and pre-retirees haunted by past market crashes, especially if interest rates rise and the stock market recovers further.


2. Will no-guarantee VAs become all the rage in 2014?

2013 may be remembered as the year all those guaranteed lifetime income riders came back to haunt variable annuity carriers. Made in more flush economic times, those benefits might have been a great selling point back in the day. Then the market crash of 2008-09 happened and interest rates remained stubbornly low, making those income riders a strain on the bottom line. So what’s a VA carrier to do? Some offered buyouts of those living benefits, some cut back on features or raised fees; some suspended additional inflows into VAs with living benefit riders. But two of the more successful VA providers, Jackson National and Jefferson National, carved out a niche in the VA-with-no-living-benefits market, touting them as a tax-deferred investment tool. Will more big-name VA carriers follow suit in 2014?

Image: Shown is the Center Square buildings in Philadelphia, Monday, Oct. 10, 2005, where Lincoln National Corp. is headquartered. (AP Photo/Joseph Kaczmarek)


3. Private equity and annuities: The rubber hits the spreadsheet

In 2013, private equity outfits like Guggenheim and Apollo (via Athene Holding Ltd.) seemingly bought just about every fixed annuity company up for grabs (Aviva USA, Sun Life). That was the fun part. (Well, maybe not so much fun for the guys combing over the books and finding the cash to make the buy.) Now, after regulators in states like New York and Iowa have imposed stricter reserving standards on those PE outfits, the hard work of integrating their new purchases and making a profit from their fresh acquisitions begins. Will their different — some would say more aggressive — slant on asset management be a good fit for the fixed annuity brand? How will they impact the distribution model? Will they buy more annuity enterprises? Will they eventually take their new assets public? In December, Harbinger took Fidelity & Guaranty public with an IPO on the NYSE. It will be interesting to see if private equity will remain enamored of the fixed annuity business as 2014 progresses, or if their roving checkbooks will turn elsewhere. At the very least, they stirred the pot a bit, and we’ll always have 2013.


4. Will the Glenn Neasham case ever end?

Just when I thought I was out, they pull me back in.” Michael Corleone in “Godfather, Part 3” said that famous line. But Glenn Neasham, the California insurance agent that saw a jury convict him of theft from an elder who was later found to have dementia, could have the same sentiment about now. In October, an appellate court overturned his 2011 conviction, saying, in essence, he never stole anything from his client, Fran Schuber (83 at the time) and the jury instructions were incorrect on some points. A month later, the state’s Attorney General’s office asked the California Supreme Court to review that decision, with the aim of getting the conviction reinstated on the grounds that yes, he did steal from Schuber and oh, the instructions to the jury were just fine. Got it? Yeah, you’re probably not the only one whipsawed by these legal maneuverings. Now Neasham, and the entire industry, await a ruling by the California Supreme Court. But the impact of this case will not be easily forgotten and how advisors sell annuities to seniors has probably been irrevocably altered.


5. How low can interest rates go?

Interest rates can’t go any lower, can they? An entire industry waits and watches…

Image: In this Thursday, Jan. 14, 2010, file photo, the Federal Reserve Building is seen in Washington. The Federal Reserve said Wednesday, Oct. 16, 2013, that economic growth slowed in a few key regions of the United States from September through early October, as businesses grew worried about a budget impasse that led to a partial government shutdown. (AP Photo/Alex Brandon, File)