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2. In-force block management.
Several annuity writers, variable annuity writers in particular, have developed over time large legacy in-force annuity blocks whose inherent risks warrant very careful management going forward.
Options to mitigate risks proved minimal coming out of the financial crisis in 2008, but several industry and market trends suggest new avenues opening up to these writers that will make the management of the blocks potentially less onerous.
A more robust M&A market now exists for companies looking to exit the space or divest specific blocks of business, fueled by new market entrants on the reinsurance and private equity side. Product features that have applicability on a retrospective basis, such as target volatility funds, have been introduced to lower the volatility and risk profile of the block. From an operations perspective, some have explored outsourcing or offshoring solutions for annuity blocks in run-off to execute actuarial functions at a lower cost base.
With the right mix of product, operations and market-based solutions, companies should remain vigilant about exploring all alternatives to better manage the associated cost and risks of their legacy in-force variable annuity blocks.
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3. Technology evolution expands beyond operations.
A large number of insurance providers have gone through, or are in the process of going through, actuarial and finance transformations focused on updating existing technology and process infrastructure to optimize internal operations.
As the use of
digital technology and social media continues to expand, we expect carriers also to transform the advice and fulfillment models that support the delivery of annuity-based savings solutions to the market.
These outlets provide a cost-effective approach to reaching consumers that has the potential to engage the next generation of
retirement income buyers in a more effective way than traditional approaches.
Annuity providers that remain confined to traditional distribution and fulfillment models run the risk of a rising cost base and a less engaged set of consumers as time goes on.
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4. Continued product rotation away from variable annuities.
There are a number of factors that suggest a continued rotation of premium dollars away from
variable annuities and into fixed annuity products.
Variable annuity market leaders continue to face capacity constraints and reduce the richness of product feature to control sales levels as a result; at the same time, the number of remaining active providers continues to shrink.
Fixed indexed annuities continue to set sales records and are offering a compelling alternative to variable annuities for retirement income via lifetime withdrawal benefit riders.
With interest rates rising, the book value fixed annuity market could begin to reverse its sales slump as credited rates become more competitive.
While variable annuity products are not going away any time soon, these developments seem to be turning the heads of providers by offering alternative avenues to growth.
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5. Deferred income annuities.
With sales now reaching the US$2 billion mark and several providers having recently brought new products to market,
deferred income annuities are igniting a new-found spark in the previously stagnant immediate annuity market.
These products are offering consumers another savings-vehicle alternative for retirement income needs, with more flexibility than traditional single-premium
immediate annuities and more simplicity than competing fixed indexed and variable designs.
Providers have also addressed initial product concerns by including liquidity options that provide payoffs in the event of death and inflation-protection options.
Given the success of
fixed indexed annuities, the potential for rising interest rates and the swelling tide of a widening retiree pool, deferred income annuities should continue to build on their early market success.
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