While the annuity market is always evolving, it remained steady for years after the large economic crisis of the 2000’s. But over the past year and a half, we have seen the market making more significant changes. New companies are selling annuity products, popular products are changing and new sales leaders are emerging. In Life Health Pro’s article “Top five developments to watch for in the annuity space,” Dave Czernicki and Christopher Raham from Ernst & Young discuss upcoming developments in the annuity marketplace.
Private equity firms have had a major impact in the annuity market for the past couple of years. They have bought large blocks from major annuity companies. With such large annuity purchases, private equity firms have taken over a chunk of market share from some of the traditional annuity leaders. These private firms currently have an advantage over traditional annuity sellers because they don’t have strict regulatory compliance issues and they are able to maintain more aggressive investment portfolios. This competitive edge is likely to be challenged within the next couple of years with stricter private equity firm requirements. But until then these firms will continue to increase competition in the industry and challenge the traditional annuity companies.
The management of in-force annuity blocks has to be more closely monitored going forward. This applies especially to companies selling variable annuities. Annuity writers are looking for alternatives to help lower their market risk and volatility. Companies have to find the correct mix of their product offerings, managing market risk and overall operations. This will help them manage the costs and risks of their in-force annuity blocks. Technological advances are the third major thing changing in the annuity industry. Companies are changing the technology throughout their entire infrastructure to eventually lower costs and attract a new generation of consumers looking for retirement income. It won’t be long before companies who stick to more traditional models have a hard time connecting with customers and see increasing costs of operation.
Variable annuities aren’t going away, but it looks like the current trend will continue. Annuity premium dollars will likely keep shifting from variable to fixed annuity products. As interest rates continue to rise, fixed annuity sales are likely to increase. Fixed indexed annuities remain popular and will likely continue to be used as an alternative growth option. People are also drawn to indexed annuities for their lifetime withdrawal benefit riders. More variable annuity providers are cutting benefits or moving away from selling the products at all.
Deferred income annuities are shaking up the immediate annuity market in a good way. These newer products have become increasingly popular with sales exceeding $2 billion. They are likely to continue their increasing sales into the future. Deferred income annuities are more flexible than the traditional single premium immediate annuities, but offer less complexity than fixed indexed or variable annuity products. Some of the initial concerns consumers had about liquidity, death benefits and inflation protection have been addressed by carriers. Deferred income annuities are likely to build on their quick popularity into the future. The annuity market is going through some positive changes that should increase competition and benefits to consumers.