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Voya Financial and the Buffer Annuity Comeback

A little less than two years ago, Voya Financial exited the buffer annuity market, but with a recent resurgence in popularity, they have now announced a re-entry with the launch of a new product.

“I think we just came to the market too early for it,” said Carolyn Johnson, CEO of annuities and individual life at Voya in a recent InvestmentNews article.

Voya originally launched PotentialPLUS, its former buffer annuity, in 2014 before closing it in October 2015.  “In hindsight, maybe we should have left it on [the shelf],” Johnson said.

Buffer annuities, also referred to as structured annuities, are a cross between variable and indexed annuities, and have grown in popularity recently, despite a sluggish annuity market overall. Variable annuity sales have been steadily declining for several years now, and a recent forecast calls for a continuation of that trend. Indexed annuities, which had been on a decade-long bull run, have recently also begun to fall, with most blaming the upcoming Department of Labor fiduciary rule, which calls for more rigorous sales standards. Overall, annuity sales in the first quarter of 2017 were down for the fourth consecutive quarter, according to LIMRA.

However, sales of buffer annuities were up 60% year-over-year in the first quarter. While they still only make up between 5 and 10% of the overall variable annuity market, insurers are taking note. Currently, there are five insurers offering buffer annuities, including AXA Equitable Life Insurance Co., MetLife Inc, Allianz Life Insurance Co. of North America, and Members Life Insurance Co., each of which has come to market since 2010. Just last week, Allianz announced the addition of two additional buffer annuities.

Last year, insurers sold $7.3 billion in structured annuities which was double the sales from 2015 and nearly four times the total in 2014. With numbers like that, it’s easy to understand why Voya is making their comeback plans. On the other hand, there are still those who question the decision.

Donald Lopezi, senior vice president and regional director fo the western region of the Financial Industry Regulatory Authority Inc., said earlier this year that buffer annuities are very complex, and complaints about the products have begun to come in.

Buffer annuities are similar to indexed annuities because they traditionally provide a buffer to market downturns. The major difference is that while indexed annuities can’t credit less than 0% over a specified period, buffer annuities may hedge about 10% to the downside. This means the insurer eats the first 10% of losses but leaves the investor responsible for any additional negative returns. Buffer annuities usually have higher caps on returns to the upside too.

“We have some individuals who really understand [variable annuities] and they were struggling with this,” said Mr. Lopezi, whose territory encompasses all states west of Denver. “You have to wonder, does the firm understand it? Does the rep?”

Ms. Johnson of Voya said the firm conducts training with all its representatives “to ensure every adviser has product-specific training, so potential customers understand the features and benefits of any product.”

Voya Financial plans to launch its new product at the end of this year or beginning of next.

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