Many of our partner companies are in the midst of planning for 2015, as are we at CreativeOne, and I imagine you are for your business or agency as well. We are drawing some conclusions about the manufacturers of life insurance and annuities and their plans for 2015.
Fixed index annuity (FIAs) sales now dominate the fixed annuity space and are closing the gap on variable annuities, whose sales have been declining.1
The first half of 2014 saw a 39 percent increase over the first half of 2013 in fixed sales.2 Despite the low interest rate environment, sales of fixed annuities continue to rise,3 due to demographics, and lack of competitive and alternative products in this low interest rate environment.4 Dollar-wise, most of the growth during the last three years has come from independent agents and agency channel, though bank and career distribution have doubled their small levels of sales during that time.5 We expect all of these trends to continue next year.
Product trends are rising in FIA sales, a few Multi-Year Guaranteed (MYG) annuity fire sales to “buy business,” and growth in the fledgling Deferred Income Annuities (DIA). Few companies manufacture the latter yet, but expect growth and innovation, though as of now a number of FIAs with GLWBs on a guaranteed basis compete with DIA payouts handily.6 IAs have vaulted to predominance in fixed sales on the strength of “volatility controlled strategies” yielding an “uncapped” strategy and powerful GLWBs with interest stacking features. Index method competition is providing clients with many quality options amongst products, but “back-casting” wars can cloud rather than illuminate customer comparisons. Expect more movement from regulators following the Kansas bulletin and Iowa bulletin attempting to clamp down on cherry-picking and insufficient disclosure. New annuity reserving tables may negatively impact annuity pricing by requiring higher reserves for increasing American longevity. Your clients may want to buy sooner rather than later. Surrender periods continue to trend to 10 years or less thanks to increasing state-by-state adoption of 10-10 rules.
The entry through acquisition during the last several years by private-equity type firms may continue. Those firms may acquire other targets (several are rumored), though we have seen several already partially divest their purchases. It will take years to determine how those firms act as players in the fixed annuity market, but their initial efforts seem positive. Several large, well-established insurers will take the plunge into the FIA/income rider market, following Nationwide and Western & Southern Life this year. Most key manufacturers of annuities have significant capital to write increasing business due to strong capital positions, so supply should be available for any significant increase in demand.
Industry-wide life insurance sales have been declining for some time, and we expect that to continue. America is less insured now per capita, adjusted for inflation, than it was in the 1960s.7 Recent factors sapping life sales could be a long secular decline of interest rates damaging the life-insurance-as-an-asset-class story, older age longevity damaging wealth transfer sales, and younger generations’ socio-economic differences from previous generations. There is plenty of manufacturer capacity and several companies are offering competitive pricing.
You can rely on CreativeOne as your partner to peer into the future of our industry, and leverage our carrier relationships on your behalf. We want to be part of your 2015 planning as we all adapt to inexorable change.
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The views expressed herein reflect the views of Mike Tripses as of the date referenced. These views may change as conditions change.
4. Guarantees are backed by the claims-paying ability of specified insurance company.