What You Need to Know
- Life, health and annuity issuers are doing well, despite the COVID-19 pandemic and very low interest rates.
- Life insurers may have trouble repeating last year's strong annuity sales gains, S&P's Heena Abhyankar said.
- She expects RILAs to eat the market share of non-variable indexed annuities as well as that of traditional variable annuities.
Rating analysts at S&P Global Ratings predict that sales of registered index-linked annuities, or RILAs, will continue to grow — by crowding out sales of fixed annuities, non-variable indexed annuities and traditional variable annuities.
The analysts talked about annuity-eat-annuity competition in a web meeting S&P held Thursday to address hot topics in the world’s insurance markets.
The S&P analysts concluded that the life, health and annuity issuers they rate are doing well, despite the effects of the COVID-19 pandemic and very low interest rates.
“Most companies are entering 2022 on a relatively strong footing,” said Heena Abhyankar, an S&P director who serves as a lead analyst for the U.S. life insurance market.
Capitalization levels are high, any problems with investments are manageable, the current level of pandemic-related life insurance claims has been manageable, and 2021 sales growth was wrong, Abhyankar said.
The Annuity Market
One cloud, Abhyankar said, is that life insurers may have trouble repeating the strong annuity sales gains they recorded in 2021.
Abhyankar and other S&P analysts suggest in a life insurance sector report, which came out earlier this week, that annuity sales have fluctuated around $230 billion per year for the last decade, “with one annuity product’s sales growth coming at the expense of another’s contraction.”
The number of people approaching retirement age is growing, but low crediting rates may be a turnoff, and many people may simply lack the savings they need to pay for annuities, the analysts conclude in the report.
RILAs vs. Other Annuities
RILAs are variable annuities, meaning that a RILA issuer can expose the holder to the risk of lost of principal.