Cost of Hedging Annuity Guarantees Soared: IRI

For U.S. annuity issuers, the cost of managing the risk associated with benefits guarantees is much higher now than it was just 18 months ago.

The Insured Retirement Institute (IRI) has included a chart illustrating that increases in its new State of the Insured Retirement Industry report.

Resources

• A link to the new IRI State of the Insured Retirement Industry report is available here.
• An article about IRI data on high-income Millennials is available here.

IRI is a Washington-based group for organizations with an interest in annuities and other income planning arrangements.

IRI says many factors, such as consumers’ growing awareness of retirement risk, and the employer retirement plan tax incentives in the Secure Act, should help annuity issuers increase sales.

“Research shows that workers with access to an employer-provided plan are more likely to save,” Wayne Chopus, IRI president, said in a comment in the report announcement.

In the long run, “the longest bull market in history should be a tremendous opportunity for variable annuities with income  guarantees, fixed indexed annuities, and structured annuities as products that can help investors lock gains and create floors against potential losses while continuing to participate in further market gains,” IRI says in the report.

In the short run, the higher hedging costs may be holding back sales of variable annuities with benefits guarantees.

IRI shows in the new report that variable annuities with guaranteed living benefits accounted for just 26% of U.S. individual annuity sales in the first three quarters of 2019. That’s down from a 29% share of sales in 2018, and down from a 59% share in 2011.

Sales of structured annuities and fixed annuities with market value adjustment provisions gained market share.