How might a redefined fiduciary standard impact annuity sales? Will carriers continue the trend of offering buyouts to variable annuity holders? Five conjectures for the year ahead.
1. It’s all about the guarantees.
Consumers are looking for retirement products that provide living benefits. “It’s all about the guarantees — the company standing behind those guarantees and what those guarantees are,” says Douglas Dubitsky, vice president, product management and development for retirement solutions, Guardian Life Insurance Co. of America. However, with variable annuity carriers having a difficult time managing risk in a low interest rate environment (see #2), the popularity of fixed indexed annuities, as well as single premium immediate annuities (SPIAs) and deferred income annuities (DIAs), are on the rise. There’s no doubt the public wants guaranteed lifetime income, but…
Image: Lea Wait takes a moment to relax in front of her recently installed wood stove at her home in Edgecomb, Maine, on Wednesday, Jan. 23, 2008. Some retirees coping with the sliding economy save money by lowering their thermostat and heat with a wood stove. After four challenging economic years, retirees' top priority is establishing a guaranteed lifetime income. (AP Photo/Pat Wellenbach)
2. Variable annuities: Not living up to the promise?
Three carriers — AXA, Transamerica and Hartford — all offered buyouts to VA holders. Basically, they asked policy owners to exchange either their living benefit rider or death benefit for a larger account amount. Will more companies that have these “legacy” VAs on the books do the same? How many owners will actually take them up on this offer? “Is it a good deal or not? Most likely it’s not if they are trying to buy someone out of a guarantee,” said Kevin Loffredi, vice president of annuity solutions at Morningstar.
Image: The TransAmerica Pyramid, foreground, and the Bank of America building, back, in downtown San Francisco, are shown during a power outage, Tuesday, Dec. 8, 1998. A citywide blackout cut off power to more than 370,000 customers, halting trains, planes and cars, closing shops and schools and leaving pedestrians scrambling. (AP Photo/Paul Sakuma)
3. Will annuities be kicked off the fiscal cliff?
With fiscal cliff negotiations ongoing in Washington, D.C., all tax expenditures are on the table, says Judi Carsrud, director of Federal Government Relations for NAIFA. She couldn’t say what the chances are of that happening at this point, but if the tax deferred nature of annuities is altered, the impact on the industry would be “dramatic,” she says. Others, however, are more optimistic Congress will preserve the tax advantages of retirement savings products.
Image: In this Dec. 10, 2012 photo, fog obscures the Capitol dome on Capitol Hill in Washington. Big tax increases will hit millions of families and businesses a lot sooner than many realize if Congress and the White House don't agree on a plan to avoid the year-end fiscal cliff of automatic tax increases and government spending cuts. In fact, they already have. More than 70 tax breaks enjoyed by individuals and businesses already expired at the beginning of this year. If Congress doesn't extend them, a typical middle class family could get a $4,000 tax hike when they file their 2012 returns next spring, according to a private analysis. At the same time, businesses could lose dozens of tax breaks they have enjoyed for years. (AP Photo/J. Scott Applewhite)
4. The fiduciary standard may dramatically impact annuity sales.
How would this impact the annuity industry? Again, it could be dramatic if insurance agents are held to this standard. Many in the industry, like NAFA and NAIFA, contend that the suitable sales requirement is stringent enough. Others contend that to apply a universal fiduciary standard looks good on paper but in practice might put producers in impossible compliance positions when the vast majority of them are already selling suitable products as it is. "If it were to pass, it would be significantly horrific," says Kim O'Brien, president and CEO of NAFA, citing concerns over how to license insurance agents and putting advisors under two sets of regulations.
Image: Image: In this Dec. 6, 2011 photo, Securities and Exchange Commission (SEC) Chair Mary Schapiro testifies on Capitol Hill in Washington. Schapiro will step down as chair of the SEC next month after a tumultuous tenure in which she helped lead the U.S. government’s regulatory response to the 2008 financial crisis. The fiduciary standard has languished under Schapiro, mostly because of strong opposition to the rule. (AP Photo/Evan Vucci, File)
5. Private equity wants in the annuity business.
Rumored buyers for Aviva USA are Guggenheim Partners and Apollo. Guggenheim has made purchases of fixed indexed annuity carriers, most recently snapping up the annuity business of Sun Life. Are these outfits, who are basically asset managers, the best fit for the annuity business? Will the annuity industry see more M&A activity? On a side note, Guggenheim bought the Los Angeles Dodgers, so they have some big bucks to spend, and appear willing to spend it.
For a complete look at what the next 12 months have in store for the life and health industry, visit LifeHealthPro's 2013 Outlook page.