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August 15, 2023 at 01:08 PM
The investment seas were just choppy enough in the second quarter to be great for sales of indexed annuities — and forecasts of fall storms in Congress could blow sales of indexed annuities forward for the rest of the year.
Nick Lane, the president of Equitable Holdings’ Equitable Financial insurance business, was one of the executives who talked happily about indexed annuities during the conference calls big insurers held recently to go over their second-quarter earnings with securities analysts.
“We think there’s structural demand, as the baby boom generation moves away from accumulation toward protected-equity stories, amplified by the volatile times we’re seeing in the macro-political environment,” Lane said.
Other executives also suggested that their registered index-linked annuities, or indexed annuities filed with regulators as variable annuity contracts, and their non-variable indexed annuities, or annuities filed as fixed annuity contracts, should do well for the rest of the year.
What It Means
Clients will continue to hear plenty about indexed annuities for the rest of the year, because that’s what many of the big annuity issuers are focused on selling.
Indexed Annuities
Traditionally, life insurers have used big piles of bonds and other fixed-rate investments to support investments in fixed annuities.
They have used funds resembling ordinary mutual funds to power variable annuity contract crediting rates.
For both RILA products and non-variable indexed annuities, insurers tie the crediting rates to the performance of one or more investment indexes.
Because the issuer of a RILA registers it as a security with the U.S. Securities and Exchange Commission, it can expose the investor who buys to a RILA to the risk of loss of principal. Issuers can use that flexibility to sell the investors features that provide full or partial against market risk for an extra fee.
Because the issuer of a non-variable indexed annuity files it as an insurance product, not a security, it must protect the holder against market-related loss of principal. But a client still could lose account value due to fees, losses associated with pulling assets out early, or problems at the issuer.
What the Executives Said
Here are seven things life insurers said about indexed annuities and related matters during the analyst calls.
1. Even companies facing headwinds had tailwinds helping their indexed annuity sales.
Lincoln Financial reported positive but lower operating earnings, mainly because of the effect of efforts to overcome a capital hit related to older life insurance policies with rich guarantees.
But, for Lincoln, the performance of the company’s RILA, which it calls an indexed variable annuity, was a highlight.
Ellen Cooper, Lincoln’s CEO, acknowledged that the sales of the RILA were down 8% from sales in the second quarter of 2022, but sales held steady between the first quarter of this and the second.
“IVA represented over a third of total annuity sales for the sixth consecutive quarter,” Cooper said.
2. Insurers like writing index-linked annuities, because they can manage the investment risk related to the products relatively easily.
Edward Spehar, the chief financial officer at Brighthouse Financial noted that Brighthouse still has to manage risk for its new Shield RILA contracts along with risk for a big book of traditional variable annuities.
But Spehar emphasized that Brighthouse can manage Shield risk using hedging instruments that are easy to buy and sell.
“I look at Shield, and I buy a call spread, and I write a put,” Spehar said. “It’s pretty straightforward.”
