New structured annuities grab market share as banks jump in

(Bloomberg) — Buyers of U.S. annuities are clamoring for new products linked to indexes that may use elaborate strategies to control risk, attracting regulatory scrutiny as they widen a market that favors more traditional structures.

A total of 27.7 percent of indexed annuities sold in the third quarter of last year are tied to measures that track stocks and other types of assets, such as cash or commodities, according to Wink’s Sales & Market Report. A year ago, these types of indexes didn’t exist in Wink’s market data.

Consumers last year purchased an estimated $47 billion of indexed annuities, which are structured insurance products, according to Alan Grissom, global head of insurance at S&P Dow Jones Indices, in a Jan. 22 webcast hosted by the National Association for Fixed Annuities. That would be a 21 percent jump from the $38.7 billion sold in 2013, Wink’s data show.

“I don’t know if there’s ever been a better time to be involved in index-linked insurance products,” Grissom said on the program. S&P licenses indexes for structured products and annuities.

Fixed annuities offer investors a series of guaranteed payouts in retirement. In the mid 1990s, some insurers began offering a kind of structured annuity that layered an index on top of the fixed annuity to potentially enhance returns.

The indexed versions are typically linked to well-known benchmarks, in particular the Standard & Poor’s 500 Index. As interest rates continue to hover close to record lows and investors regard a six-year bull market with caution, indexes created to reduce risk or target certain volatility levels are gaining popularity.

Bank Interest

The 10-year Treasury note traded at a yield of 1.8 percent Wednesday at 10:17 a.m., less than half a percentage point higher than its record low in 2012. The S&P 500 has risen 87 percent over the past half decade.