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2013 Trends for Annuities as a Whole

This blog is, in essence, a continuation of yesterday’s blog on what to expect in variable annuity trends for 2013.  But this entry deals with the annuity industry as a whole and what we think will be happening next year.  Producer’s Web published a Life Health Pro article, “Annuities: 5 things to expect in 2013,” where Maria Wood gives us some hints at changes to come.  Some of the changes I talked about that are likely in store for variable annuities will effect all annuities, while others are more specific.

The number one thing that customers want from annuities is guarantees.  This is slightly ironic because guarantees are what has hurt the variable annuity industry.  But that is why the popularity of fixed indexed annuities is skyrocketing.  Companies selling variable annuities have found it difficult to manage their risk with low interest rates, so single premium immediate annuities and deferred income annuities are becoming the products of choice to offer these guaranteed living benefits that customers are looking for.

Hartford, AXA Equitable, and Transamerica have offered variable annuity buyouts to their customers.  There is a good chance that this offer of buying customers out of their guarantees will continue into 2013.  Carriers are looking for a way to protect themselves from the large amount of variable annuity guarantees they have sold that could affect their future solvency.  Asking customers to sell death benefit guarantees or living benefit riders in exchange for an increase in the amount of their account may be good for the insurer, but may not really be the best bet for the customer.  Look closely before making one of these variable annuity deals.

How might the fiscal cliff change the nature of annuities?  The fiscal cliff is all about taxes and the tax-deferral benefits of annuities could possibly be changed.  While some people think this is unlikely, on the off chance that annuities lose some of their tax-deferral bonus, it would really change the industry.  Since the government has been working hard to convince people of the importance of retirement saving, I would be shocked if they made it less appealing to buy an annuity guaranteeing lifetime income.  We’ll certainly watch this aspect of the fiscal cliff talks closely.

Another thing up in limbo that would really change the annuity industry for advisors is this possible universal fiduciary standard.  Organizations like NAFA and NAIFA say that this would border on a catastrophe for the annuity industry.  Advisors would have to follow two different sets of regulations and it would be very difficult to license insurance agents with a new fiduciary standard.  The annuity industry argues that their suitability requirements for annuity sales are more than enough to keep advisors honest and legal when selling their products.

Private equity asset managers are entering the annuity business, most recently with Guggenheim Partners’ purchase of Sun Life Financial’s variable annuities business.  They are rumored to have interest in Aviva USA’s annuity products as well.  It definitely remains to be seen what impact these private equity firms will have on the annuity industry and whether it is best for the future.  But they certainly have the money to spend and are not leaving the industry anytime soon, so it looks like everyone will have to adapt.  These changes for 2013 are partially up in the air based on government decisions, so we’ll keep watch and keep you readers current as things change.

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