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Mike Reidy. Credit: Security Benefit

Life Health > Annuities

Annuity Constraints Can Be the Client's Friend

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What You Need to Know

  • Security Benefit generated $4.6 billion in annuity sales in the first half.
  • Insurers once focused on embellishing annuities with new bells and whistles.
  • Some bells and whistles could hurt product performance.

Keeping something like the current annuity surrender charge system could work better for many clients than trying to develop new contracts without any restrictions on what clients do with their money.

Mike Reidy, head of RIA distribution at Security Benefit, included that suggestion in a recent email interview.

One question was about the ultimate outcome of current efforts to develop contracts that lock up clients’ assets for shorter and shorter periods.

Reidy rejected the idea that the outcome would automatically mean an end to restrictions of any kind.

Advisors “need to look at whether new benefits and features increase costs for their clients, or lower their rates,” Reidy said. “In some cases, a new benefit may look good on paper, but once advisors and clients understand the details, they end up sticking with what they had.”

Reidy and David Byrnes, Security Benefit’s head of distribution, emphasized the importance of starting the annuity design process in a thoughtful way.

“The best results often come when carrier products are aligned with the goals and objectives of the advisors and clients,” Byrnes said. “We have to listen to them before we take action.”

What It Means

Insurers like Security Benefit are trying to offer products that align with what you and your clients really want, rather than just throwing ideas out and seeing what sticks.

Security Benefit

Security Benefit is a Topeka, Kansas-based life insurer that’s controlled by Eldridge Industries.

The company has been a pioneer in developing employer-sponsored retirement plans, indexed annuities and other retirement-related products and services.

It has $47 billion in assets under management.

Annuity Flexibility: The Downside

Years ago, insurers competed hard based on adding new bells and whistles to annuities.

Reidy noted that annuity design is difficult because poorly thought-out product additions that seem as if they should help the annuity holders could hurt them.

He gave increased asset reallocation flexibility an example of a feature that could be a problem.

Being able to reallocate assets sooner might seem positive but could have drawbacks, he said.

“If, after just six months, an advisor moved a client out of an S&P 500 annual point-to-point contract purchased in June 2022, what happened?” Reidy asked. “They missed out on the big upswing in the index and are sitting at a lower rate today.”

Marketing “simple and easy to understand offerings that provide competitive rates, caps and spreads for new money and renewals is the best course of action,” Reidy added.


Byrnes and Reidy also talked about the effects of the rapid increase in overall interest rates in 2022 and the resulting drop in the resale value of bonds that are already in force.

Given the volatility in stock prices and an increase in new annuity crediting rates, “fixed annuity products presented opportunities to lock in the relatively high current rates,” Byrnes said.

Going forward, “everything will depend on the Fed and the direction of interest rates,” he added. “If the rate cycle continues, we expect strong fixed annuity sales to continue for 2023 and into 2024. If the Fed is not able to avoid a recession and has to cut rates, it could cool sales significantly. Advisors that locked in rates for their clients will be better positioned once strength in the economy re-emerges.”

Mike Reidy. Credit: Security Benefit


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