Every trend that puts shadows and mist over the life insurance market puts the same shadows and mist over the annuity market.
Annuity issuers, meanwhile, face two additional opposing forces of hostility.
On the one side, portfolio diversification lovers ask why anyone, ever, would pay anything for an income guarantee. For the diversification lovers, the universal answer to all problems, from the possibility of running short of assets in retirement, to bad breath, is a target date mutual fund.
On the other side, doomsayers wonder how well an insurance company can make good on guarantees, given how uncertain the future always is. For the doomsayers, the only good annuity issuer would be one that quietly accumulates Treasury bills and never does anything scary, such as agreeing to pay a stream of income to an annuity holder.
The annuity writers, meanwhile, soldier onward, stunned by the realizing that the wave of boomer retirements they have been musing about since, say 1955, is now upon us.
Here are five questions we may use to try to make some sense of what’s going on in the annuity market in the coming year.
1. How will annuity crediting rates compare with bank certificate of deposit (CD) rates?
One of the bread-and-butter issues in the annuity market is whether annuities will look like a good deal for consumers when compared with CDs. In the past few months, bank CDs have been looking like a better deal, according to Wink.
Analysts at Fitch Ratings have a related question: Whether fierce competition between indexed annuity issuers will lead some to take on too much risk.
“While competitive pressures may affect individual insurer’s sales, Fitch is more concerned about pressure on pricing and a potential ‘arms race’ with the introduction of more aggressive product features, including income riders,” the Fitch analysts write in a 2018 outlook report.
2. Will anyone buy, or sell, the new fee-based annuity contracts?
In 2017, insurers prepared for the DOL fiduciary rule by rolling out many fee-based products. LIMRA reported in November, however, that fee-based products accounted for only about 0.1% of U.S. individual annuity sales in the third quarter.
DOL headquarters (Photo: Mike Scarcella/ALM)