What You Need to Know
- Higher rates are already improving the guarantees issuers can offer, says Eric Henderson, president of Nationwide Annuity.
- But clients who switch variable annuities now could lose guarantee protection and lock in losses.
- Rising interest rates also mean higher rates on fixed annuity products.
Falling stock prices can hurt efforts to help variable annuity owners take advantage of improving product guarantees.
Eric Henderson, president of Nationwide Annuity at Nationwide Financial, talked about that challenge Friday, in an interview.
He said that rising interest rates are helping insurers offer higher rates on fixed products, and better benefits guarantees for holders of variable annuities.
Advisors want to move clients via 1035 exchanges from annuities with no guarantees, or weak guarantees, into new products with stronger guarantees, but, in many cases, “that’s not happening,” Henderson said.
The clients may have products that protect them against loss of contract value, if they keep assets in the contract. If those clients shift assets into new annuities, they will could lose some or all of the guarantee protection and lock in losses, Henderson said.
That means a client who has contributed $100,000 to an annuity, with a guarantee protecting $100,000 in contract value, might be able to move only a smaller amount, such as $80,000, into an annuity with a higher rate.
What It Means
Advisors with clients who hold annuities with account values affected by decreases in stock prices may simply have to wait until the values have recovered to move the clients’ assets.
Advisors who believe that some clients should accept contract value losses and move assets anyway may have to work harder than usual to explain for their recommendations.
Nationwide’s Annuity Business
Henderson is in charge of an annuity business that generates about $16.5 billion in direct written premiums per year.
Nationwide ranked sixth in the United States in terms of 2021 annuity considerations market share, with 5.1% of the national annuity considerations total, according to data from the National Association of Insurance Commissioners.
The Columbus, Ohio-based company’s 2021 annuity considerations were comparable to the 2021 gross domestic product of Mozambique.
“We’re excited about the absolutely fantastic year we had last year,” Henderson said.
The company’s registered index-linked annuities and nonvariable indexed annuities performed especially well, he said.
New LIMRA figures show overall U.S. individual annuity sales increased 9% between the first half of 2021 and the first half of this year.
The third quarter is just three weeks old. At this point, third-quarter annuity sales seem to be similar to second-quarter sales, Henderson said.
5 More Annuity Observations
Here are some other things Henderson is seeing now.
1. The supply of the derivatives contracts remains strong.