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Insurers Using RILAs to Shift From Risky Guaranteed Living Benefits: Cerulli

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What You Need to Know

  • Registered index-linked annuities use index options to provide both upside potential and downside protection.
  • RILA competition is heating up and new versions will be coming to market.
  • RILA sales reached $39 billion in 2021, representing approximately 17% of total annuity sales.

Sales of registered index-linked annuities are rising, and more insurers are replacing traditional variable annuities that offer living benefits with the products, according to Cerulli Associates.

“Insurers indicate that they are using the RILA to pivot away from risky guaranteed living benefits,” states Donnie Ethier, the head of Cerulli Associates’ Wealth Management practice. “Because the client is willing to assume some investment risk, insurers are able to offer more attractive index caps on RILAs than on fixed-income annuities.”

Many insurers are replacing traditional variable annuities that offer living benefits with RILAs, according to Cerulli. Across all annuity types, 85% of insurance executives believe that RILAs will be best poised for growth over the next three years, the Boston-based firm said.

RILAs, including those that are built on variable and fixed annuity contracts, reached $39 billion in 2021, representing approximately 17% of total annuity sales, according to a recent Cerulli report, “U.S. Annuity Markets 2021: Acclimating to Industry Trends and Changing Demand.”

The RILA surge has been driven by broker-dealer and advisor awareness and understanding, large insurers entering the space and increasing supply. Sales could hit $50 billion by 2026 if those trends continue, according to Cerulli.

RILAs are structured variable products that use index options to provide both upside potential and downside protection.

RILA competition is heating up, Cerulli said, and new versions will be coming to market soon.

The RILA “has inspired a great deal of innovation both within, and outside of, the annuity industry, and we expect more ideas to emerge over the near term,” Ethier said. “Although by nature the product is less risky than a traditional variable annuity, Cerulli cautions insurers against starting another arms race on the RILA front.”

A total of 15 new RILAs were registered with the Securities and Exchange Commission in 2021, compared with five the previous year.

Legislation floated last year, H.R. 4865, the Registration for Indexed-Linked Annuities Act, directs the Securities and Exchange Commission to revise any rules necessary to enable issuers of index-linked annuities to register on a form tailored specifically to RILAs.

“Insurers would be wise to avoid overloading their RILAs with features, as they may prove confusing even to seasoned professionals, not to mention their clients,” Ethier said. “Instead, the industry should—in ways, unite to—improve the education and acceptance of the solutions.”