When asked by financial representatives why annuities are more expensive and provide less bountiful benefits today than four years ago, Douglas Dubitsky, vice president, product management and development for retirement solutions, at Guardian Life Insurance Co. of America, has a simple answer: “The world is different today. I can only design a product that is relevant to the market I’m selling in and relative to the economic and competitive environment.”
The current landscape he refers to is dotted with nagging low interest rates, a roller-coaster stock market and uncertainty on the carriers’ part over regulations and capital requirements. Those forces, in turn, are shaping new annuity policy constructs and remaking existing products.
In the fall, Prudential did suspend additional purchase payments into several of its variable annuities. While declining to comment on the actions of other companies who have made buyback offers to holders of their variable annuities, Ferris says that Prudential has no intention at this time to do the same.
“We have no plans to offer any buybacks of existing in-force business at this point in time,” he says. “We think that creates challenges relative to the offerings we have made and the commitments we have made to advisors and their investors. Again, that is as I sit here today. I won’t make any forward looking statements about the future, but that’s current state of Prudential’s view.”
Another avenue is to design products that do not create a lot of stress on the balance sheet, or a return to the basics like simple forms of life insurance, group benefits and voluntary benefits. “You see that as a common thread in several companies’ strategies,” Raham says, “solely because those are businesses that are much more manageable and predictable from a guarantee standpoint.”
It’s also a backdrop that creates a fertile environment for mergers and acquisitions. This past year, private equity firm Guggenheim Partners bought two annuity business lines, and Athene Holding Ltd. recently snapped up Aviva USA. “The economic environment is creating stress on balance sheets and anytime that is the situation there are potential transaction activities on the table,” Raham says.” Moreover, offshore-based insurers are weighing whether they would be better served deploying capital in emerging markets rather than the U.S., he added.