As we enter a new year and begin to focus on the months ahead, it is important to note the dynamics that will affect the annuity marketplace and how we do business. From public policy developments to macroeconomic factors, from innovation to demographic change, the industry will be shaped by numerous influences throughout 2014. To help monitor and understand these market-changing forces, IRI recently released its annual State of the Industry report, reviewing current trends and providing an outlook for the industry for the new year. Here’s what to watch for in 2014:
Congress is back in town and leaders of the tax writing committees are promising more tax reform drafts. The push for tax reform stalled late in 2013, but some influential lawmakers contend that it remains a priority. For any reform legislation to advance, it will need to pick up steam early in the year, as 2014 is an election year. As a wildcard, Congress will need to deal with the debt ceiling by approximately Feb. 7. The industry must closely monitor congressional action on these issues and continue to ensure that policymakers understand the importance of tax incentives for retirement savings. Protecting these incentives should be a top legislative priority for all those seeking to expand retirement security in America.
Janet Yellen will take the helm of the Federal Reserve on Feb. 1 as the first female Fed Chair. As head of the central bank, she will command considerable influence over interest rates, particularly at this conjuncture. The Federal Reserve announced at the close of 2013 that it will begin to unwind its quantitative easing program, in which Yellen was a leading architect. Yields on 10-year Treasury notes rose in anticipation of tapering. The rise in interest rates through most of 2013 was a benefit to the insured retirement industry, supporting the strongest fixed annuity sales since 2009 during the third quarter and generally leading to lower hedging costs and reserve requirements on the variable annuity side of the business.
Final 2013 sales results for the industry will be reported in March. Through the first three quarters of 2013, overall annuity sales stabilized as a result of more favorable macroeconomic conditions, continued product innovation, and ongoing demand. The final sales results will confirm if the industry is continuing to move forward and will serve as a barometer for 2014.
As we move into April, the National Association of Insurance Commissioners (NAIC) Spring National Meeting will be in full swing. The Federal Insurance Office’s (FIO) report on insurance regulation modernization was released days before the last NAIC meeting in December, providing state insurance regulators little time to digest and react to the report. The meeting will provide the first opportunity to learn how insurance commissioners nationwide plan to respond to the recommendations within the report. The FIO report embraced several recommendations put forth by IRI, including market conduction examination reforms – specifically the “lead state” concept and coordination among the states – and the creation of a national insurance licensing clearinghouse via the National Association of Registered Agents and Brokers Act (NARAB II). These reforms, if enacted, will lead to more efficient and effective regulation, ultimately reducing costs for insurance providers and Americans who rely on insured retirement strategies.
With the start of May most companies will file their annual prospectus updates with the SEC. This will serve as an indicator of current trends in variable annuity product design. The sheer length of these prospectuses, often 150 to 300 pages, should also serve as a reminder to the industry and regulators of the importance of pursuing a variable annuity summary prospectus. The SEC has indicated that this remains a top priority for the agency. Bringing forward and finalizing a variable annuity summary prospectus rule will better serve consumers and help facilitate more informed decision making.