AnnuityNews Wrap: Downgrade Begets Downgrade?
By Linda Koco
Industry people are buzzing about the Aug. 22 announcement that Standard & Poor's chief honcho, President Deven Sharma, is stepping down. Reason cited was his desire to “pursue other opportunities,” but the talk is that S&P’s August rating downgrade of the U.S. played a role.
Meanwhile, indexed annuity professionals are thinking “Whew, this might help.” That is, the step-down might help with calming those customers who are turned off by S&P’s U.S. downgrade and by extension, the S&P link option in their indexed annuity policies.
A statement from McGraw-Hill Companies, parent of S&P, says Sharma will take on a special assignment working on the company's strategic portfolio review until the end of the year.
HEADS UP ON SALES: It looks as if annuity buyers are voting with their dollars. That is, they are going for upside potential—but with guarantees. Take a gander:
Variable annuities stole the show, racking up a 16 percent gains in second quarter compared to 2Q 2010 to $40.9 billion, reports LIMRA, Windsor, Conn. Another wow: 87 percent of those new sales had a guaranteed living benefit rider attached (when available).
As for sales of indexed annuities — a fixed product — sales did pretty well in 2Q, too. AnnuitySpecs.com, Des Moines, is reporting that at $8.2 billion, these sales were up nearly 16 percent from the previous quarter. Compared to 2Q last year, they did drop — by a little over 1 percent, the firm says — but given the low-interest environment, annuity watchers are saying “pretty good” even to those results.
In fact, sales of all types of fixed annuities did pretty well considering the interest rate environment. LIMRA is reporting that these sales reached $21.5 billion in 2Q, up 6 percent from first quarter 2011.They were also up 1 percent for the first half compared to first half 2010. Not earth-shaking, but not a nosedive, either.
Worth noting: Immediate annuity sales rose 5 percent from last year and 22 percent from the prior quarter, says LIMRA. The sales total is still peanuts compared to variable annuity sales — only $2.2 billion for the quarter — but the jump is significant in view of the fact that income annuities were sleeper products as recently as only two years ago.
LOOKIE-HERE: A new Fidelity Investments study from the 401(k) arena might give variable annuity advisors some food for thought — or advice. The study found that 401(k) participants who maintain a diversified asset allocation strategy, even in volatile markets, are “rewarded” when equity markets rebound. Examples: Participants who changed equity allocations to zero percent between Oct. 1, 2008, and March 31, 2009, the lowest months of the recent market downturn, and maintained this allocation through June 30, 2011, saw an average account balance increase of only 2 percent through June 30. But those who dropped to 0 percent equity and then returned to some level of equity allocation after the market decline saw an average account balance increase of 25 percent; and those who stayed with an asset allocation strategy inclusive of equities saw an average account balance increase of 50 percent.
GROUP ANNUITY TREND: Technology solutions provider Majesko Mastek reports it is seeing a “surge” in demand for group life and annuity record keeping/administration systems. It’s an interesting development, given that the firm saw little such demand “for years.” The lack of demand was likely due to lack of supply, the company suggests. But vendors (including Majesko) are now offering group systems, so competition and user demand are heating up. Majesko thinks the trend could be help industry efforts to reach the mid-market in both the group and worksite sectors.
STRUCTURED SETTLEMENT ANNUITY COMEBACK: The Hartford just announced that it is re-entering the marketplace for structured settlement annuities after a two-year hiatus. These products make tax-free payouts to people who receive settlements related to workers’ compensation or personal injury claims. The Simsbury, Conn., carrier says it will also be offering medical underwriting for these products, a capability that can potentially increase the annuity’s periodic payments. This is not the biggest marketplace in the world, so one more player counts. The carrier is a player with experience; as of June 30, the company had $7.6 billion in assets under management related to structured settlement annuities.
ANOTHER INDEXED ANNUITY LIVING BENEFIT RIDER: Yet another insurer is offering a living benefit rider with its indexed annuities. This time it is American General Life Companies. The Houston carrier says its AG Lifetime Income Builder rider guarantees that the policy’s “income base” will grow at no less than 6 percent compounded annually for up 20 years. The carrier also says the rider says the “guaranteed lifetime income stream” will grow at no less than 2 percent a year (if allowed to accumulate for at least 10 years there are no excess withdrawals). But younger clients need not apply; this rider is only for ages 55 and up.
ANNUITY TRAINING DATA BEEFS UP: The Annuity Training Platform (ATP) is only 10 months old but already has more than 25 carriers and thousands of producers in its system, we learned this week. Offered jointly by Insured Retirement Institute, Washington, D.C., and RegEd, Morrisville, N.C., the system lets financial advisors and producers see and take their required annuity courses, including company specific courses. It also provides confirmation that resident state requirements have been met. A recent upgrade allows for real-time state reciprocity calculations and confirmations.
HOUSING ISSUE FOR OLDER CLIENTS: Annuity advisors often have older clients who are planning to sell their homes and use those funds to move into a senior housing community and finance their retirement years. However, Kaiser Health News is reporting that the ongoing depressed real estate market is slowing home sales, so the seniors can’t move. That, in turn, causing occupancy rates to fall at many senior communities nationwide — for instance it fell to 89.5 percent in first quarter from 94.4 percent in first quarter 2007 for continuing care retirement communities (data is from the National Investment Center for the Seniors Housing & Care Industry to illustrate). Question for advisors: Could annuities help these seniors as they wait to sell and/or as they age in place?
AND NOW FOR THE BANK COMPETITION: Annuity professionals are keeping an eye on what their bank competitors are doing. It’s a good idea, since bank sales of annuities were up in June — by 7 percent, to $3.7 billion — compared to the previous month, according to the Kehrer-LIMRA Monthly Bank Annuity Sales Survey. “This is the first time we have observed growth for both fixed and variable annuity sales in the month of June since 2006,” says Janet Cappelletti, associate research director at Kehrer-LIMRA. That’s not all. The June 2011 sales were up by 31 percent compared to June of last year, and they rose by 48 percent from the beginning of this year.
THESE FIRST-HALF INCOME ANNUITY SALES ARE TURNING HEADS: New York Life is reporting that its fixed immediate annuity sales topped $1 billion in the first six months of 2011 -- up 26 percent over same period last year. Distribution is through New York Life agents and third-party channels. The company has long focused on developing the immediate annuity market, and it looks as if that focus is paying off. In fact, LIMRA research shows the company is the top seller of immediate annuities for the first half.
FACTOID: The average age at purchase for an immediate annuity is 73, and the average immediate annuity premium is just over $107,000, according to data released by LIMRA late last year. This data is based on immediate annuity contracts issued in 2008 and 2009.
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].
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