News editors tend to question whether annuity product news is actually news.
It’s usually about cheerful announcements about new contracts, new strategies for calculating the crediting rates, and new opportunities for agents to earn commissions and bonuses, or for fee-based advisors to earn fees.
Now, annuity product news is about the issuers figuring out how to work from home, slashing product menus to reflect falling interest rates, and trying to reassure financial professionals, other business partners, and themselves that we’ll get through this.
Tamiko Toland, head of annuity research for Toronto-based Cannex Financial Exchanges Ltd., said in a commentary that, even before severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) began causing COVID-19 pneumonia in the United States, annuity issuers were already facing a challenging situation, due to low interest rates.
Now, “we obviously are seeing in this new black swan event,” Toland said.
Here are five ways the current situation is making annuity product news more suspenseful than most in the income planning community would like it to be, drawn from Toland’s commentary and carrier product news updates posted on the web.
1. Representatives from insurers, distributors and retail sales operations are having a hard time getting together in person to talk about products.
The Million Dollar Round Table, for example, was hoping it could start its 2020 annual meeting in Anaheim, California, June 7, on schedule.
But MDRT leaders decided last week that they had to convert the meeting into a virtual event.
2. Insurers are pandemic-proofing their products.
Cannex provides detailed streams of annuity contract data.
Toland said she’s heard of a carrier pulling at least one variable annuity contract off the market; several carriers suspending sales of indexed annuity contracts; and, in some cases, carriers suspending sales of annuities with living benefits or death benefits guarantees.
Insurers are also sending out notices about procedural changes developed to accommodate the fact that most people are working at home, and that financial professionals in many areas may no longer be able to see clients in person.
3. Prices for the products still on the market are getting worse.
In the income annuity market, for example, “many carriers have been updating their rates,” Toland said. “The rates for pure lifetime income are often not quite as sensitive, because they are very long-term, but this is an unprecedented environment.”
4. The changes look necessary.
As sobering as the changes are, what may be more sobering is market observers’ quick acceptance of the changes.
Suspending the sale of an annuity “is the fastest response the insurer can make to a change in market conditions, which we obviously are seeing in this new black swan event,” Toland said. “It is incumbent on insurers to act responsibly in providing security and peace of mind in their products. The pricing dynamics include considerations of interest rates and the price of instruments used to back their products, of course. However, they also include factors such as policyholder behavior, which greatly affects both lapse expectations and utilization of elective benefits.”
5. Issuers feel the need to warn annuity holders against “panic selling” their stocks.
Athene, for example, is encouraging financial professionals to offer clients an article about how to survive a stock market dip.
On the other hand, the current period of turmoil has also given life insurers to explain why annuities, and annuity guarantees exist.
American Equity, for example, has sent a letter encouraging the company’s partners to talk about the “Safety and Sleep Insurance” that an annuity can provide.
“An American Equity annuity protects your clients from declines in the equity and bond markets,” Anant Bhalla, the company’s chief executive officer, wrote in the letter. “This principal protection is a foundational strength during market or economic uncertainty.”
“This reminder of the risk of another black swan — and one coming from an unexpected quarter — is likely to increase the demand for guaranteed products once the dust settles,” Toland wrote. “This is yet another demonstration of sequence of returns risk and the importance of income planning in and around retirement.”
— Read 5 Things to Know About Pandemics, for Annuity Sellers, on ThinkAdvisor.