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Principal buys Wells Fargo’s retirement business

Posted on April 11, 2019 by -

Wells Fargo agreed to sell its $827 billion retirement plan services unit to Principal Financial Group for $1.2 billion as the bank retrenches in the wake of scandals, according to a report in Bloomberg News this week and other releases.

By acquiring Wells Fargo’s Institutional Retirement & Trust business, Principal will assume ownership of Wells Fargo’s defined contribution, defined benefit, executive deferred compensation, employee stock ownership plans, institutional trust and custody and institutional asset advisory businesses and serve a combined 7.5 million U.S. retirement customers, a Principal release said.

The acquisition will double the size of Principal’s U.S. retirement business by the number of total recordkeeping assets. More than two-thirds of Wells Fargo’s institutional retirement assets are in plans ranging from $10 million to $1 billion. The transaction is expected to close in the third quarter of 2019, pending regulatory approval.

In a release, AM Best commented that the credit ratings of De Moines, IA-based Principal Financial Group, Inc., and its insurance subsidiaries remain unchanged following the announcement of the acquisition, which has a purchase price is $1.2 billion in cash, with up to an additional $150 million payable in two years based on revenue retention.

The transaction increases Principal’s U.S. retirement business’ assets under administration by approximately $820 billion from almost four million plan participants across retirement and non-retirement trust and custody, defined benefit and defined contribution accounts.

AM Best notes that the acquired business will be held outside Principal’s domestic insurance operations upon transaction close with the expectation that this business will be transitioned through its domestic insurance entities over time. The immediate impact on the ratings of Principal’s insurance operations are modest, but support improving diversification, scale and profitability over the long-term.

On Feb. 21, 2019, AM Best revised the outlook to positive from stable for the Long-Term Issuer Credit Rating and affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Rating of “aa-”of Principal Life Insurance Company and Principal National Life Insurance Company.

The outlook of the Financial Strength Rating remains stable. The ratings reflect Principal’s balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM). The positive outlook reflects the continued strength and evolution of the organization’s ERM capabilities.

As of December 31, 2018, the respective Wells Fargo retirement businesses had $827 billion in assets under administration served by approximately 2,500 employees in locations across the U.S., Philippines and India. There are four major employee centers in: Charlotte, N.C.; Minneapolis/Roseville, Minn.; Waco, Texas; and Manila, Philippines.

The bank has undergone a leadership change in recent weeks, announcing in March that it would replace Tim Sloan as chief executive officer after the leader faced calls for his ouster from politicians. C. Allen Parker, Wells Fargo’s general counsel, was named Sloan’s replacement on an interim basis.

“Wells Fargo, the fourth-largest U.S. bank by assets, has been paring smaller business lines since scandals began erupting from its branch network in 2016. Problems have since emerged in more units, prompting the Federal Reserve to ban Wells Fargo from growing until regulators are confident in executives’ ability to oversee their operations. That’s added to pressure on the firm to shed some units and concentrate on those where it can earn the best returns,” the Bloomberg News report said.

“This sale reflects Wells Fargo’s strategy to focus our resources on areas where we can grow and maximize opportunities within wealth, brokerage and asset management,” Jon Weiss, head of Wells Fargo’s wealth and investment-management business, said in a separate statement.

According to Bloomberg News, “At the bank’s 2018 investor day, he said he’s targeting $600 million in savings by 2020. Earlier this year, Weiss hired Nyron Latif from Goldman Sachs Group Inc. as head of operations to review the unit’s efficiency.

“The Fed barred Wells Fargo in February last year from increasing assets beyond their level at the end of 2017, citing concerns about a variety of customer abuses, including the revelation that employees had opened millions of accounts without consumers’ permission. The bank told analysts and investors at the start of this year that it’s planning to operate under the cap through the end of 2019, rather than just the first half.”

© 2019 RIJ Publishing LLC. All rights reserved.

Tell Us What You Really Think

Posted on April 11, 2019 by -

Life insurers increasingly rely on registered reps and financial advisors to recommend or sell their annuities, so insurers tend to listen closely when advisors and their broker-dealers offer feedback about what the insurers are doing right and what they could do better.

Last week’s LIMRA/Society of Actuaries Retirement Industry Conference in Baltimore was the kind of event where life insurers and representatives of advisors exchange such views. During a panel discussion there, executives from Edward Jones, Raymond James, and Simplicity Financial Distributors gave a roomful of life insurance managers and actuaries an earful.

Here are some samples of what the executives said:

Scott Stolz, the president of the Raymond James Insurance Group, explained why sales of variable annuities with living benefits have weakened steadily over the years. Once a favorite of advisors looking to add a flexible source of guaranteed income to client portfolios, its bloom has faded. As Stolz and other distributors have said in the past, the value proposition of the products has shrunk and the products remain stubbornly labor-intensive.

“The [preferred] income layer has been the VA with living benefits, but the products became less attractive as insurers de-risked,” Stolz said. “The performance of the volatility-managed products has been miserable. People now know they won’t get a step-up [in the notional “benefit base” that’s used to calculate income payments]. That’s a shift from eight to ten years ago, when you could get a step-up.”

Variable annuity income riders were once so valuable, in terms of potential income streams for people who waited 10 years between purchase of the contract and the first withdrawals, that advisors readily added the rider and its one percent (of the benefit base) expense. But “too many VAs were sold as ‘insurance in case the market falls,’” Stolz said. “Advisors told clients, ‘Just throw the rider on and we’ll have it if we need it.’ Now we’ve eliminated the ‘maybe we’ll use it maybe we won’t’ sale. Last year the market was driven more by indexed annuities.”

Today’s advisors, he added, are using a logical and justifiable technique on the occasions when they do incorporate an annuity with an income rider into a client’s retirement income strategy. If a client says, “I need at least $3,000 a year above Social Security for essential expenses,” the advisor can say, “Invest X number of dollars in a deferred annuity with a living benefit, wait Y number of years, and then start pulling out $3,000 a month.”

“The advisors are working backwards [from the client’s income goal] now,” Stolz said. “It used to be, ‘Let’s allocate some dollars to an annuity and throw a rider on.’ Now it’s, ‘How much income do we need and how much do we need to put into the annuity to get it?’”

Another panelist was Greg Jaeck, senior product leader at Edward Jones, the 17,000-advisor brokerage firm. There are no fixed indexed annuities on Edward Jones’ product shelf; a senior executive once described their returns as “manufactured.” He offered feedback on the ways Edward Jones generates retirement income for clients.

Edward Jones advisors, for instance, sell a fair amount of single premium immediate annuities, or SPIAs, which produce a guaranteed income stream starting within no later than 13 months after the contract is purchased with a lump sum premium. The increase in bond yields during 2018 helped SPIA sales.

“There’s been an uptick of sales on the SPIA side as we’ve gone from 175 basis points to 315 basis points and back to 250 basis points on 10-year Treasuries,” Jaeck said. For clients who want to combine liquidity with a lifetime income guarantee, Edward Jones offers a simple, CD-like fixed deferred annuity with a living benefit rider. “We’ve gone from $250 million to over a $1 billion in sales [with that product],” he added.

“Simple wins. Of our financial advisors, 50% of them might do one to five annuity contracts per year,” Jaeck said. “They will gravitate to what they understand. That’s why the fixed deferred annuity with an income guarantee is resonating so well. It’s simpler [than an indexed annuity]. Even a SPIA is simpler. We’re up 40% this year in SPIAs or DIAs [deferred income annuities]. That category may never be big as index annuities, but the simpler story works.”

Stolz said that he has tried to impress upon his advisors that when they add a SPIA to a client’s portfolio, the task of managing his or her other assets becomes easier. The advisor won’t be able to charge an asset management fee on the value of the SPIA, but the trade-off can be worthwhile.

“Advisors don’t like to sell SPIAs because the assets go away, and because clients don’t like to delve into their principal,” Stolz said. “The reality however is that the majority of clients will have to spend principal. We tell advisors, ‘If you handle the income piece then it gets easier to invest the rest of the money.’

“When we ask our advisors if it’s easier to manage a client’s money when he or she has a defined benefit pension, they typically say yes. Once they understand that a SPIA is like a pension, a light bulb usually goes off. But you have to tell the advisors four or five times before it sinks in. It would be useful if the insurance wholesalers would reinforce that message.”

There’s plenty of room for life insurers to improve their support for existing annuity business, Stolz said. “We have $52 billion of annuity assets on our books, and the amount of work associated with managing the block is horrific. It’s not like years ago. You have hard-to-manage riders. You have to make sure there are no excessive withdrawals and that the clients are starting income when they should. For instance, clients might be eligible for a 12% [of premium] withdrawal at age 68, but if they don’t need the money they don’t take it.

Scott Stolz

“There’s close to zero help from the annuity companies on supporting the old blocks of business. The first insurer who makes it easy to manage a block, and text the client saying, ‘There’s a step-up due, or here’s how to manage a withdrawal [will get more business from us.] You might have eight versions of a product, all within one prospectus. It’s hard to find somebody at the home office who remembers how each version of the product worked. And if that person dies, I don’t know what I would do.”

Life insurers who help advisors save time will be more popular at Raymond James, Stolz said. “Advisors look at their ratio of revenue-to-time-spent. Anything [insurers] can to decrease the time spent will help. On the FIA side, it’s often about the rate, but all of our products are equally worth selling. So it comes down to the difference in time-spent. Advisors need support not just when the policy is issued but also post-issue, and even four or five years after the policy is issued.”

Regarding the indexes that are used in indexed annuities, neither Stolz nor Fisher showed enthusiasm for the custom indexes that many issuers now offer.

“We prefer the annual point to point crediting method and we use the S&P500 index. It’s recognizable. We’re skeptics on the performance of the new indexes. They scare off a lot of clients,” said Jarrod Fisher. Stolz agreed. “We realized that you’ll get about the same result whether you use a volatility-controlled index or not,” he said. “So about 85% of our indexed annuities are linked to the S&P500 index.”

The panelists were asked what they thought about the introduction of no-commission annuities for advisors who don’t accept commissions from life insurers, and whether manufacturer-paid commissions to advisors, which create a conflict-of-interest for the advisor vis-à-vis the client, will even exist for much longer.

Greg Jaeck

“That’s where the market is going,” Jaeck said. “The fiduciary rules that have been proposed by individual states and the National Association of Insurance Commissioners are driving [the adoption of no-commission annuities].

“My team and other distributors are in the advisory market or looking at it. We need to design annuities to fit into the advisory solution. But it’s not just a matter of stripping out the commission. It’s more about technology,” he said, referring to the fact that annuities are not well integrated into advisors’ electronic workflows. “There will be a tipping point. The industry would double or triple if we can solve the advisory issue. If not, it could go the other way.”

Stolz expects the no-commission annuity market to grow. “A year and a half ago I thought in five years we would no longer see that commission-paying packaged products. It’s coming, judging by the number of meetings I sit in on where we talk about the commission structure so our advisors don’t have to get accused of conflicts of interest,” he said.

“About 15% of our annuity business today is no-commission,” Stolz added. “We will always offer advisors a choice, and we won’t make the decision for them. But more and more advisors will switch to no-commission. We need a lot of infrastructure to support commissions and, with half or more of our [total] business on the advisory side, we’re not doing enough commission business to justify it. About 90% of our compliance chores are related to commissions. If we don’t fix that, you will see annuity sales fall off a cliff in three and a half years.”

As the panel discussion drew to a close, Stolz asked life insurers to please stop using the acronym RILA, which stands for registered index-linked annuities, to describe annuities that offer a floor or buffer against potential loss of principal rather than a guarantee of no loss at all. “I understand why they call it RILA,” he said, “but you have to find something else to call it.” In an industry already loaded with acronyms, “RILA” might be one too many.

© 2019 RIJ Publishing LLC. All rights reserved.

The Case for Collaboration among State-Sponsored Savings Plans

Posted on April 11, 2019 by -

Over the last several years, most states have been actively engaged in exploring ways to enable more private-sector workers to save for retirement. In addition to understanding the need to enhance retirement security by expanding coverage, they recognize that the failure to do this would expose state governments to increased budget pressure, because increasing numbers of retirees with insufficient savings need additional social services.

The proportion of U.S. private-sector workers with access to employer-sponsored payroll deduction retirement savings plans or pensions has not improved significantly for several decades. According to the Employee Benefits Research Institute, approximately one-half of all American workers lacked access to an employer sponsored plan in 2013.

To date, states have considered creating individual retirement savings programs that would serve only their own citizens. However, states should explore other models — ones based on a multi-state or regional approach that would enable participating states to provide even better services to their citizens. Multi-state arrangements offer opportunities for possible economies of scale by spreading both startup and ongoing costs over wider populations. This could enable smaller-population states to make saving opportunities available to their citizens at a lower cost.

Section 529 College Savings Programs and ABLE Accounts: Existing Multi-State Savings Programs

Both the Section 529 college savings accounts and the Stephen Beck, Jr. Achieving a Better Life Experience (ABLE) Act programs provide models for how states have developed multi-state savings programs. For example, most 529 plans are open to residents of other states. Only a handful of states still restrict their college savings plans to their state residents, but even in those states, their residents are not restricted from enrolling in plans of other states.

Most plans have engaged private sector turnkey program managers that provide all necessary services under one comprehensive management agreement. These include investment management, customer service, legal compliance, recordkeeping and administration, marketing and outreach, and distribution. These program managers often run the Section 529 programs in more than one state, which allows them to spread some operational costs among more participants.

The ABLE Act, which gave eligible individuals with disabilities the ability to establish tax-advantaged savings accounts, provides a particularly good example of multi-state savings programs that might serve as a model for structuring multi-state retirement savings programs.

A provision in federal law explicitly allows states to manage ABLE accounts in more than one state, and several of these arrangements exist. The largest is a consortium, managed by Illinois, of 16 states joined together to offer what is essentially the same program, managed by the same firm and offering the same investment choices. Each state can customize the program to meet its individual needs, but use the same basic platform. The consortium allowed them to reduce costs to well below what a similar program would have cost if each state had individually set it up.

Another 11 states have adopted Ohio’s program to establish ABLE accounts. Unlike the consortium, which allows for variations, each state in this case is using the same program. Because it is serving a larger population of savers, administrative costs are lower.

Finally, Oregon has its own program, but consults with other states about how to open and manage their ABLE programs while also offering them the ability to use the same program managers as Oregon uses at a reduced cost.

Strength in Numbers: Options for Multi-State Collaboration to Promote Retirement Security

While any state can choose to create its own program limited to its own residents, a regional or other multi-state approach has the potential to achieve the economies of scale necessary to minimize costs while significantly expanding access to retirement savings options.

There are three general models for multi-state retirement savings programs that states could consider:

An established state program contracts with another state to structure and administer the program for both states. This would be similar to the Ohio ABLE arrangement in that one state would adopt another state’s retirement savings program. The originating program’s private-sector partners would manage both states’ programs jointly.

An interstate alliance or consortium jointly structures and administers a program for the states in the alliance. States could band together and use a master agreement, to build a single system that they would all use, including the private sector partners, creating a true multi-state program. As noted above, several states are currently using this type of arrangement to implement ABLE accounts and allow for some variations in services or investment choices.

A state opens its program to individual savers and employers from other states, and allows them to join its platform. A state that has a retirement savings program could follow the pattern of many Section 529 college savings programs and allow participation by out-of-state individuals or by employers that do not already sponsor plans of their own. While employers that have employees in more than one state typically already sponsor a 401(k) or other plan, not all do.

If an employer had employees in more than one state that offers programs facilitating retirement savings, but the employer had no plan of its own, it could choose to have all of its employees participate in a single state’s program. To work, the other states in which the employees are located would have to accept this arrangement.

While the first two models appear to have the most promise for general use, the third might be used to facilitate employer choice in the event that a multi-state employer did not already sponsor a plan.

Whether a state chooses to create its own program or to join a multi-state program, a decision to offer any state-facilitated program will improve the retirement security of its citizens.

A regional or other multi-state approach is not essential, but it is an option that should be considered. Any state can establish its own, standalone state-facilitated retirement savings program. However, multi-state collaboration could have important advantages. By joining together, states have the potential to offer better services and reduce the cost of building or supporting a retirement savings platform.

A multi-state approach of one kind or another can make the process easier and more cost-effective — and can accelerate the date when a program can become self-sustaining and fees can be minimized. This is true regardless of which type of state-facilitated savings program the states adopt or which method they use to collaborate.

© 2019 Georgetown University Center for Retirement Initiatives, March 2019. Article is available at the link above. Reprinted by permission.

Pfau named director of RICP program at The American College

Posted on April 11, 2019 by -

Wade D. Pfau, Ph.D., CFA, has been named director of The American College of Financial Services’ Retirement Income Certified Professional (RICP) designation program, college president and CEO George Nichols III announced this week.

Pfau will also now serve as Co-Director of the New York Life Center for Retirement Income, joining Steve Parrish, JD, RICP, as Center Co-Director.

Pfau joined The American College in 2013 as a professor of Retirement Income in the Financial and Retirement Planning program. He has been a core contributor to the college’s RICP designation program curriculum. In his new roles, Pfau will lead the Retirement Income Center and its RICP courses and curriculum.

From 2003 to 2013, Pfau lived in Japan, where he worked with the National Graduate Institute for Policy Studies and published a landmark paper challenging the so-called 4% safe withdrawal rule. He won the Journal of Financial Planning’s inaugural Montgomery-Warschauer Award for his paper on the topic.

Pfau holds a doctorate in economics and a master’s degree from Princeton University, and bachelor of arts and bachelor of science degrees from the University of Iowa. He is also a Chartered Financial Analyst (CFA).

The American College also named Colin Slabach as assistant director of the New York Life Center for Retirement Income and an assistant professor of retirement. In these roles, Slabach will continue to develop The American College’s retirement programs, teach courses, and support Pfau and Parrish in leading the Retirement Income Center. Slabach will assume this role over the summer.

Slabach joins The American College from the faculty of Texas Tech University. He holds a master’s in Personal Financial Planning from Texas Tech and bachelor’s in business finance from Eastern Illinois University, and is currently a doctoral candidate at Texas Tech.

David Littell, JD, ChFC, a creator of the RICP designation, will move to working with The American College in a part-time capacity as senior contributor to the RICP program and a mentor to College faculty and students.

In another personnel move, Chad Patrizi, PhD, was named executive vice present and provost at The American College beginning May 1, 2019. This newly created position will be the second-ranking administrative officer at the college. He joins from American Public University System, where he is currently vice president and dean of the School of Business.

© 2019 RIJ Publishing LLC. All rights reserved.

What Will Fuel The Next Recovery?

Posted on April 4, 2019 by -

Ever since major central banks cut short-term interest rates close to zero in autumn 2008, and subsequently purchased huge volumes of bonds as part of their quantitative easing operations, economists have debated about when and how fast the “exit” from these unorthodox monetary policies would be.

But, a decade later, developed-economy interest rates are stuck far below pre-crisis levels and likely to remain so. Germany’s ten-year bond yield of -0.02% (as of March 23) signals market expectations that the European Central Bank will maintain zero policy rates not just until 2020 (the official ECB forward guidance) but to 2030. Japanese bond yields imply zero or negative interest rates for even longer. And while ten-year yields in the United States and the United Kingdom are just above 1% and 2.4%, respectively, both of these suggest minimal or no increases in policy rates for another decade.

The 2008 financial crisis may have inaugurated a full quarter-century of dramatically lower interest rates. In this new normal, still more unorthodox policies – including forms of monetary finance – may in some countries be needed to maintain reasonable growth.

The financial crisis occurred in 2008 because deficient regulation allowed huge risks to develop within the financial system itself. But the depth of the subsequent recession, and the long period of slow growth that followed, was the result not of continued financial system fragility, but of the excessive leverage in the real economy that had developed over the previous half-century. Between 1950 and 2007, advanced economies’ private-sector debt (households and companies) grew from 50% to 170% of GDP and adequate growth seemed attainable only if debt grew far more rapidly than nominal GDP.

After the crisis, loan growth turned negative and remained depressed for many years, not because an impaired financial system lacked the capital to extend credit, but because over-leveraged households and companies were determined to pay down debt even if interest rates were zero. The same pattern was observed in Japan in the 1990s.

In this environment, large-scale fiscal stimulus was the only way to achieve even anemic growth. Britain’s public-finance deficit grew to 10.1% of GDP in 2009, the US deficit ballooned to 12.17%, and even the eurozone’s increased to 6.3%. But the inevitable rise in public debt led many governments to conclude that these large deficits must soon be curtailed. Fiscal austerity, combined with continued private deleveraging, led to inflation rates stuck below target, disappointing growth in real wages, and a populist political backlash.

By 2016, it seemed that governments and central banks were “out of ammunition,” monetary or fiscal, and economists debated whether any policies could avoid secular stagnation when interest rates were already zero and public debt levels were already high. Some, including me, broke the ultimate policy taboo and suggested that we might need to consider monetary finance of increased fiscal deficits. Former Federal Reserve Chairman Ben Bernanke argued that as long as the quantity of such finance was determined by independent central banks, useful stimulus could be achieved without excessive inflation.

Just two years after the gloomy 2016 nadir, however, the skies seemed dramatically clearer. By 2018, forecasts of global growth and inflation had risen significantly, and central banks and markets were again focused on the long anticipated “exit” from unorthodox policies. It is vital to understand what drove this sudden improvement.

The answer is simple: massive fiscal expansion, which in two major economies was partly or wholly financed by central bank money. The US fiscal deficit rose from 3.9% of GDP in 2015 to 4.7% in 2018 and a projected 5.0% in 2019: China’s grew from below 1% in 2014 to over 4%, and Japan’s remained around 4%, abandoning previous plans for a reduction to zero by 2020. And while the US fiscal expansion was financed by bond sales to the private sector, in China the central bank indirectly financed large bond purchases by commercial banks, while in Japan, the entire net increase in public debt is financed by central bank purchases of government bonds. The global economy recovered because the world’s three largest economies rejected the idea that high public debt burdens made further fiscal expansion impossible.

But the impact of that stimulus has faded. US growth is slowing as the one-off impact of President Donald Trump’s tax cuts wears off; China is struggling to curb excessive leverage and manage the impact of Trump’s tariff increases on exports and confidence; and, in October, Japan will implement a long-planned sales tax increase which threatens to slow consumption growth. Eurozone growth, too, is slowing in the face of declining external demand.

So we are back to facing the same question as in 2016: What to do if stagnation threatens when interest rates are already close to zero? Among the proposed answers are variants of monetary finance. Proponents of “modern monetary theory” argue that money-financed fiscal expenditure should be the normal mechanism for managing nominal demand, and the “Green New Deal” presents monetary finance as one option for financing socially and environmentally desirable investment.

The valid insight behind these propositions – that governments and central banks together can always create nominal demand – was explained by Milton Friedman in an important 1948 essay. But it is vital also to understand that excessive monetary finance is hugely harmful, and it is dangerous to view it as a costless route to solving long-term challenges, rather than a demand-management tool for use in exceptional circumstances.

Faced with slow growth, political discontent, and large inherited debt burdens, monetary finance cannot be a taboo option. In Japan, permanent monetary finance is already occurring, even though the central bank denies it. The challenge is to ensure that it is used only within disciplines such as Bernanke proposed, rather than assuming that pre-crisis normality will return any time soon.

Adair Turner, a former chairman of the United Kingdom’s Financial Services Authority and former member of the UK’s Financial Policy Committee, is Chairman of the Institute for New Economic Thinking. His latest book is Between Debt and the Devil.

© 2019 Project Syndicate.

 

Why Indexed Annuity Sales Are So Strong

Posted on April 4, 2019 by -

For Jim Fahey, an Ameriprise advisor in Center Valley, PA, 2018 was a hockey-stick year for fixed indexed annuity (FIA) sales. “FIAs were roughly 25% of my business in 2017. But in 2018 they represented 50% to 60%,” he said this week. “I still have variable annuities on the books but I don’t think I sold any last year.”

Fixed indexed annuities, he found, appeal to jittery clients who want to lock their equity gains into a vehicle with more pizzazz than short-term bonds. “We took profits out of the market, quite frankly,” Fahey told RIJ. “When you start seeing a company like Apple, for instance, selling at nosebleed levels, you have a conversation with clients about taking some marbles off the table.”

In 2017, uncertainty over the status of proposed new federal regulations chilled FIA sales. But after the so-called fiduciary rule was swept aside by the Trump administration and a Texas federal appeals court, sales rebounded in 2018 to new records of $19.2 billion for the fourth quarter of 2018 (up almost 41% from the same quarter in 2017) and $68.4 billion for the year (up 26.8% from 2017).

Relief from regulation may not be permanent, however, and it explains only part of the FIA surge. FIAs, as they typically do during low interest rate periods, enjoyed a yield advantage last year over certificates of deposit; that helped. The aging of the baby boomers and their need for safe and/or income-producing financial instruments continued to provide some demand tailwind—but that doesn’t explain much. Accumulation FIAs have actually been selling better than income FIAs in recent years.

More fundamentally, the supply of FIAs has risen as many life insurers de-emphasize the sale of hard-to-hedge, capital-hungry variable annuities in favor of less volatile indexed annuities. The number of distribution channels for FIAs has increased as well, now extending beyond independent agents to independent broker-dealers and even, via no-commission platforms, to registered investment advisors.

“Part of [the increase in FIA sales] is carrier driven,” said a full-service national broker-dealer executive who could speak to RIJ only on background. “You have many insurers coming into the FIA space. They came in part because the volatility management strategies that insurance companies were putting into variable annuities after the financial crisis didn’t work as well as anticipated. We continued to see strong sales for the Jackson Nationals of the world” [who offered less restrained investment strategies.] But insurers who focused on volatility management strategies pulled back.”

Drivers of the sales rebound

“There was a large demand for indexed annuities in 2018 for two main reasons: Volatility in the markets and continued low interest rates on fixed money instruments such as CDs and fixed annuities,” Sheryl Moore of the annuity sales tracker, Wink, Inc., told RIJ in an email this week. “Eighteen of 20 indexed annuity manufacturers had increases in sales from the prior year.

“CDs were crediting an average rate of 1.69% (per BankRate.com) in 2018. Fixed annuities were crediting an average rate of 2.89% in 2018. Indexed annuities were much more competitive, offering average annual point-to-point caps of 5.37%—and ‘uncapped’ products yielded even greater potential returns. Sales were down in 2017 because of the DOL’s rule distracting product manufacturers and distributors. So a 26.82% increase in sales was easier-to-achieve,” she added.

“Indexed annuity sales increased for all channels, but none more than the wirehouses [full service national broker/dealers], which increased 21.14% in the fourth quarter of 2018 from the third quarter of 2018. But this channel still accounts for the least sales (except for the direct-to-consumer channel, which accounts for almost no sales). The independent agent channel increased sales only 5.77%, but took home 54.24% of the sales.”

[At the LIMRA Retirement Industry Conference in Baltimore yesterday, one life insurance executive said that recent growth has been stronger among accumulation-oriented FIAs than among FIAs with lifetime income benefits. A few years ago, about 70% of his sales involved income-oriented contracts, he said; that percentage is down to about 50%—possibly because bank advisors and broker-dealer reps want the highest crediting rates. Accumulation-driven FIAs typically offer higher crediting rates than income-oriented FIAs.]

Scott Stolz, president of the Raymond James Insurance Group, told RIJ in an email: “March was a record month in indexed annuity sales for us. We also did far more fixed annuities than this level of interest rate would typically create. Here’s what we think is going on:

  • The baby boomers are older and are therefore getting more conservative.  Many of them just can’t take the risk of another 2000-02 or 2007-09. They like the idea of getting 4-5% on average with no downside risk. I asked one of our advisors why he was now selling indexed annuities instead of variable annuities. His answer was simple: ‘My clients are older now.’
  • Every time the market corrects, we get another spike in both fixed and indexed sales. When the market recovers, indexed sales fall off a little, but remain above the previous levels thereby creating a new plateau.
  • Indexed annuities have performed as advertised over the last 10 years.  Clients (and therefore advisors) have had a good experience and are more comfortable using them. The products have gotten better, with shorter surrender charges and better caps and participation rates.
  • More traditional annuity companies have introduced products, thereby adding to the credibility of the product as well as the marketing. More financial institutions are offering the product (and actively marketing it to their advisors).”

More ‘digestible’ for issuers

At the manufacturer level, the rise of FIAs reflects in part a retreat from VAs, whose problems during and after the financial crisis drove many life insurers out of that business entirely. Several surviving VA issuers tried managed-volatility subaccounts to shift risk onto the contract owner, but those strategies backfired, in a sense, when the stock indices steadily rose.

“The FIAs are clearly more digestible for the insurers than VAs with managed volatility,” said the wirehouse executive. “The volatility management strategies just didn’t perform as well as expected during the V-shaped stock market recovery from the financial crisis. “Even if VA issuers were 100% hedged, they could have encountered situations where the subaccounts underperformed. And they had to reserve for that potential loss. After that experience, they said, ‘we don’t want to take on that risk anymore.’

“So as an advisor you ended up with an anticipation issue. Clients said, ‘I should have gotten 12 when the market went up 20. So why did I get five?’ Advisors were having a lot of conversations that they didn’t want to have about how these VA volatility strategies worked. The black box approach of FIAs is easier to explain to a client than the black box of volatility managed funds in VAs.”

“The FIA is a sweet spot for insurers,” said Scott Hawkins, an analyst at Conning, a consulting firm that tracks life insurer profitability. “FIA is not as risky as a VA. It requires a little less capital than a fixed annuity, which requires a bit more capital than a VA. And there are a lot of distribution opportunities with an FIA. They started out being sold by independent insurance agents, but now many broker-dealers sell them and they’re accessible in no-commission form to registered investment advisors (RIAs). You don’t need to own a broker-dealer to sell FIAs, so that increases the number of life insurance companies that can sell them.”

Too much of a good thing?

But Hawkins thinks that life insurers might have trouble putting all that new FIA premium to work in the bond market, where it might be difficult to find sufficiently high returns at acceptable risk levels. If not, they might have to exercise their annual right to lower the caps or participation rates of in-force contracts, which would hurt sales.

“We see a potential headwind or fallout from this increase in sales,” Hawkins told RIJ. “Insurers have to put large sums of money to work and they have to find safe assets to invest in that don’t reduce their overall portfolio yields. That creates a potential margin squeeze. They might promise 3% to the client on the assumption that they’ll earn 5%. But what happens if the company can only earn 4.5%?

“We track the changes in asset allocations and risk profiles of the insurers and we have seen a shift in both quality and duration of the bonds. They’re adding investment risk to generate more yield. For example, my colleague looked at the difference between the insurers’ average yield and the 10-year Treasury yield. In 2007, the difference was 132 basis points. In 2017, the difference reached 214 basis points.” To beat the safe return by that much, they had to take more risk, Hawkins said.

Another potential headwind: a new round of regulation. “One of the major factors [in the indexed annuity sales rebound], was that the regulation battle settled,” Hawkins added. “But now the SEC is looking at a new ‘best interest’ rule, and the states are getting involved. The DOL fiduciary rule was the first shot across the bow in terms of increased regulation, but it won’t be the last. Life insurers will need to continue to respond to that issue with the development of no-load annuities and life products.”

Clients lead themselves to the product

The wirehouse executive who spoke with RIJ believes that FIAs will continue to sell well. “As advisors get more holistic, it will undoubtedly lead to broader utilization of the products,” he said. “There have also been advances in the ability of the planning software to illustrate the benefits of annuities. The software is getting better at quantitatively optimizing the annuity in the portfolio.

“Historically, advisors would leverage annuities as part of a core-satellite strategy. They would have annuities off to one side. But the software now enables them to manage annuities as an asset class inside a broad portfolio.” It’s also easier to compare FIA crediting rates than to compare potential VA returns, he added. “So the flows naturally go to the most competitive solution. That gives issuers a clear incentive to compete on product quality.” His company intends to start selling no-commission FIAs later this year.

To be sure, FIAs aren’t quite selling themselves. Annuities are still sold, not bought. “The client isn’t coming in and asking for an FIA; it has to be put in front of them,” said Jim Fahey of Ameriprise. “Usually the clients lead themselves to the FIA. Once they express the purpose of a certain portion of their money, they’re amenable to the product.”

© 2019 RIJ Publishing LLC. All rights reserved.

Different folks, different retirement strokes

Posted on April 4, 2019 by -

After surveying groups of African Americans, Hispanics, Caucasians, Chinese, Koreans, and Asian Indians in its retirement plans, MassMutual found ethnic differences in the expected age and length of retirement, sources of income and other related issues.

The results appear in the MassMutual State of the American Family (SOAF) report, whose results were published this week.

“While we see many similarities among multicultural families when it comes to retirement planning, there remain important differences in how people view their retirement,” said Wonhong Lee, Head of MassMutual’s Multicultural Markets, in a release. “Most communities have undertaken retirement planning at about the same rate, although we see differences in expectations for timing, sources of income and confidence.”

About half of the participants surveyed had calculated how much savings they needed to retire, and about a third created a formal plan, according to the SOAF survey. Asian Indians were most likely to calculate how much savings they needed to retire (61%), but only 35% of Indian families have a plan. Only 39% of Korean respondents calculated how much they needed to retire and only 20% had a clear plan.

With the exception of Koreans, 45% of respondents plan to retire by age 65 or sooner, according to the survey, with 22% intending to retire at age 60 or before. The most common response for an intended retirement age was, “I don’t know” (26%).

A quarter of African Americans and 26% of Chinese respondents plan to retire at age 60 or younger – more than any other groups – and only 10% of Koreans said the same, the least of any group. Koreans were more than twice as likely as any other group to plan to retire later than age 70 or not to expect to fully retire at all.

One in five survey respondents overall indicated was “extremely confident” in their projected retirement age, with African Americans (30%) and Hispanics (24%) expressing the most confidence. Asian Indians (12%), Chinese (13%) and Koreans (14%) were the least confident.

African American and Hispanic and Asian Indian households are more likely to have a pension to help support their retirement. Anecdotally, many Asian American households own businesses. Overall, 54% of survey respondents expect to receive income in retirement from a pension, including 63% of African Americans, 63% of Asian Indians, and 59% of Hispanics, and 10% of Chinese.

Tax-favored retirement savings vehicles were the most commonly cited source of retirement income (33%), the survey found. Hispanics (28%) were least likely to depend upon such sources of income. Social Security (22%) was the next largest source of anticipated retirement income. Asian Indian (18%) respondents had the lowest expectations for Social Security as an income source.

Three out of four African Americans and 68% of Chinese respondents expect to live 20 years or more once retired; 36% of African Americans expect to live 30 years or more in retirement, the longest of any group by far.

Isobar conducted the State of the American Family survey for MassMutual between Jan. 19 and Feb. 7, 2018 via a 20-minute online questionnaire. The survey comprised 3,235 total interviews with Americans, most between ages 25-64, with household incomes equal to or greater than $50,000 and with dependents under age 26 for whom they are financially responsible.

For more information about the MassMutual State of the American Family Survey, please go to https://www.massmutual.com/cm/family-study.

© 2019 RIJ Publishing LLC. All rights reserved.

Kindur to Sell American Equity Fixed Annuity with Living Benefits

Posted on April 4, 2019 by -

Last December, RIJ wrote about Kindur, a direct-to-consumer Internet platform designed to help people create ETF portfolios for savings and monthly income and, if they wish, to sell them an income-generating annuity.

At that time, Kindur’ founder Rhian Horgan, a former J.P. Morgan managing director, withheld details about Kindur’s pricing and about the identity of its life insurance partner. Yesterday the news broke.

Kindur’s annuity offering is a no-commission American Equity Investment Life fixed annuity with a living benefit rider that lets them switch on income when they need it. (It also has a 10-year surrender period with a first-year penalty of 9.2%, which seems unusual for a no-commission annuity.)

In an email, Horgan said, “We built a custom annuity understanding the pricing of each component of the annuity. Surrender charges are typically included in annuities to help carrier hedge the interest rate risk on their books and also facilitate the payment of commissions to brokers.

“Even though we have no commission the cost of not having a surrender charge (evidenced through a lower payout) was much higher than the expected value, given that we see this as a lifetime holding for our customers. Customers can still withdraw up to 10% p.a penalty free as well as having access to additional funds for unexpected health events like a terminal illness.”

Before income begins, Kindur charges $250 a year. When income starts, there’s a fee for ongoing advice about optimizing the product. Here’s what the Kindur website says:

“We don’t take upfront commissions like traditional insurance agents so you have more money growing towards your retirement income. Our fees cover the advice we provide as your investment advisor while your policy grows and we don’t collect our management fee until you are enjoying the benefits of guaranteed income. We take a modest fee of $250 a year for providing advice regarding your annuity within the context of your overall portfolio, including recommendations on timing for electing income and assistance with any policy related service requests you may have. Once you elect to receive income under your Lifetime Income Benefit Rider, we take our advisory fee of .5% as a percentage of the account value. That’s $500 a year for a $100,000 account value. Our fee goes down over time as your income is paid out.”

Alternately, or in combination with the annuity income, Kindur can also provide monthly income from the client’s ETF investments:

“If you choose the Kindur Retirement Paycheck option, every month Kindur will deposit into your bank account a predetermined amount based on the spending needs you set. Depending on how you choose to fund your Retirement Paycheck, these deposits could include a combination of annuity income as well as withdrawals from your ETF investment portfolios. Your Retirement Roadmap can help you understand if an annuity may be right for you.”

Kindur will charge 50 basis points a year for managing the client’s ETF portfolio, plus six basis points a year for the ETF itself.

Kindur most recently announced a $10 million Series A round, with investments from Anthemis, Point72 Ventures, Clocktower, Inspired Capital Partners, and angel investors Jake Gibson, co-founder of NerdWallet, and James Walker, former Global Head of Investments at JP Morgan Wealth Management.

Not all of the details about Kindur’s offer or strategy were available before today’s deadline. We’ll be reporting from time to time on the progress of Kindur’s experiment in web-based annuity sales and retirement income planning.

© 2019 RIJ Publishing LLC. All rights reserved.

Allianz Life’s new binary indexed annuity: A remedy for RMDs

Posted on April 4, 2019 by -

Affluent retirees perennially complain about the chore and sting of taking taxable required minimum distributions (RMDs) from their 401(k)s, 403(b)s or traditional IRAs after age 70½. For those who don’t happen to need the money for current income, the RMD means nothing but confusing paperwork and an unwelcome tax bill.

Don’t bother reminding these folks that RMDs are the price of tax deferral or that their qualified accounts are much larger for having grown tax-deferred for the past 20 or 30 years. Better to offer them financial aspirin for their financial headache. That is the intent of Allianz Life’s new two-for-one indexed annuity contract.

The two are called Allianz Legacy Planner and Allianz Legacy Plus, in a package called Legacy by Design. As Allianz Life described it in a press release this week: “Legacy by Design is a combination of two fixed indexed annuities (FIAs) that work together to systematically and efficiently address unneeded RMD income from qualified accounts and the associated taxes, while also potentially enhancing a client’s financial legacy.”

A contract owner would fund the first annuity, Allianz Legacy Planner, with qualified money from an individual IRA or SEP IRA. Starting when the owner reaches RMD age (the year after the year he or she turns 70½ under current law), Allianz Life distributes the correct RMD amount from Legacy Planner and deposits it in Legacy Plus.

“We’ve been thinking about this for a couple of years,” said Matt Gray, a senior vice president for product innovation at Allianz Life. “Boomers first reached age 70½ in 2016. Over the next 20 years, about $10 trillion of their savings will be subject to RMDs. Our research shows that a healthy percentage of that population will not need RMDs for income purposes, and 57% don’t want to get involved in the ongoing management of RMDs. Legacy Planner and Legacy Plus are two legal contracts, but need only one application and one allocation decision. We withhold the tax and send it to the IRS.”

Starting with the first transfer, the Allianz Legacy Plus contract grows annually with each contribution. Growth is supplemented by the increase, if any, in the value of the underlying bonds and index options. The second contract has no sales commission, no surrender period and no limits or penalties on withdrawals.

Although contract owners can convert the Legacy Plus account value to an income stream, Allianz Life positions the product mainly as a way to build a legacy fund for beneficiaries. To emphasis that theme, there’s a bonus on the death benefit equal to 25% of the account value at the time of the owner’s death, minus any prior withdrawals. No living benefit is available on the product. The annual fixed interest rate is 2.0%.

The contract offers six index options: BlackRock iBLD Claria, NASDAQ-100, S&P500, Russell 2000, PIMCO Tactical Balanced Index, and Bloomberg US Dynamic Balance Index II. Current crediting rates are available here.

Crediting methods and available indices are:

  • Monthly sum with cap (available on S&P500, NASDAQ-100 and Russell 2000);
  • Annual point-to-point with cap (available on all six indices);
  • Annual point-to-point with spread (available on the Bloomberg, PIMCO and BlackRock indices);
  • Annual point-to-point with participation rate, available on the Bloomberg (80%), PIMCO (80%) and BlackRock (85%) indices. Those indices are volatility-managed.

We asked Gray about the apparent incongruity between a seemingly generous 80% participation rate and a seemingly modest 3.50% cap on, for instance, the same PIMCO index.

“The participation rates are on volatility-controlled indexes that re-allocate between the fixed income and equity components daily based on volatility,” he told RIJ. “That re-balancing enables us to offer the participation rate strategy on that index. Over the long term, all of the allocations are expected to perform similarly.”

That is, an investor should have similar return expectations from either an 80% participation rate or a 3.5% cap on the annual point-to-point crediting method with the PIMCO index. “But we stress the importance of diversification because any one index or allocation can vary a lot from year to year,” he added.

© 2019 RIJ Publishing LLC. All rights reserved.

TrimTabs foresees no US slowdown

Posted on March 28, 2019 by -

While the Federal Reserve’s recent shift in monetary policy and the inverted yield curve have stoked doubts about the U.S. economy’s strength, key macroeconomic indicators have improved recently, TrimTabs Investment Research said this week.

“Our indicators are not pointing to a recession anytime soon,” said TrimTabs director of liquidity research David Santschi. “The Fed’s policy shift had far more to do with action in the financial markets than with any change in the economy.”

The TrimTabs Macroeconomic Index, a proprietary index of leading macroeconomic indicators, climbed to a two-month high last week and is just 0.1% below its record high in September 2018.

Real wage and salary growth is also picking up, the firm said this week. Based on real-time income and employment tax withholdings to the U.S. Treasury, real wage and salary growth accelerated to 5.0% year-over-year in the past four weeks, up from 2.7% year-over-year in February. The pickup is too strong to be due to seasonal factors alone.

© 2019 RIJ Publishing LLC. All rights reserved.

Help AM Best Create Metrics for ‘Innovation’

Posted on March 28, 2019 by -

AM Best is creating a new procedure for “Scoring and Assessing Innovation” and wants your help (in the form of email comments) in drafting it. This draft criteria procedure is available here. Commenters should submit e-mails no later than May 13, 2019, to [email protected].

Innovation means different things to different people. AM Best describes it as:

“A multistage process whereby an organization transforms ideas into new or significantly improved products, processes, services or business models that have a measurable positive impact over time and enable the organization to remain relevant and successful. These products, processes, services or business models can be created organically or adopted from external sources.”

Historically, AM Best has captured innovation indirectly through its rating process. Going forward, AM Best’s evaluation of a company’s innovation level, as outlined in the draft criteria procedure, will be based on two elements:

  • Innovation inputs: The components of a company’s innovation process, and
  • Innovation outputs: The impact of the company’s innovation efforts.

The resulting innovation score will be the sum of these two evaluations.

Within its business profile building block, AM Best explicitly will consider whether a company’s innovation efforts, or lack thereof, have positively or negatively affected its long-term financial strength. AM Best expects eventually to score all rated companies and assign each a published innovation assessment.

“Innovation always has been important for the success of an insurance company, but with the increased pace of change in society, climate and technology, it is becoming increasingly critical to the long-term success of all insurers,” AM Best said in a release.

“While AM Best believes that the pace of innovation in the insurance industry is accelerating and that an insurer’s ability to innovate is becoming an increasingly important indicator of a company’s long-term financial strength, AM Best does not expect any changes to ratings as a result of the release of this criteria procedure.”

Commenters may request anonymity, but not confidentiality. All comments received through the methodology in-box that do not request anonymous treatment generally will be published in their entirety, with attribution to the author/sender at the time of implementation of the criteria procedure.

For a brief overview about the draft criteria procedure, please use the link below to watch a video interview with James Gillard, senior managing director, Credit Rating Criteria, Research and Analytics.

http://www.ambest.com/v.asp?v=innovationcriteria319

© 2019 RIJ Publishing LLC. All rights reserved.

Annexus announces new indexes for Athene, Transamerica annuities

Posted on March 28, 2019 by -

Athene USA, a top fixed index annuity (FIA) issuer, and Annexus, a prominent independent FIA product designer, have enhanced the Athene BCA suite of FIAs, according to a release this week.

In other news, Transamerica and Annexus said this week that they have enhanced their existing fixed index annuities and will partner to distribute the Transamerica Secure Retirement Index II Annuity, a product suite with a lifetime income benefit option.

Regarding the Athene contract: The updated BCA 2.0 FIA includes new indices designed by Nobel-winning economist Robert Shiller of Yale and Jeremy (“Stocks for the Long Run”) Siegel of the Wharton School of Finance at Penn.

BCA 2.0 also includes optional lifetime income and legacy growth riders, for an annual fee. Athene and Annexus also intend to launch a new FIA, called Athene Velocity, with a free built-in income rider.

“We believe the complex challenge of retirement planning demands unconventional thinking, and BCA 2.0 reflects our commitment to innovative solutions,” said Grant Kvalheim, CEO of Athene USA.

The Shiller Barclays Global Index uses Shiller’s CAPE ratio to look for undervalued equities in the United States, Eurozone and Japanese markets, using principles of value and momentum investing. Each month it rebalances between the undervalued equities, bonds and commodities to help stabilize returns in a variety of market environments.

“Our index looks for lower price components among globally diversified major asset classes with positive momentum to pursue opportunities and manage risk,” Shiller said in the release.

The WisdomTree Siegel Strategic Value Index, developed by Siegel with CIBC Capital Markets and consultation by WisdomTree Investments, Inc., offers a value strategy focused on U.S. equities.

“Each quarter, the index evaluates the 500 largest U.S. publicly traded companies for operating earnings relative to their valuation and selects the four most undervalued market sectors. The index also includes a tactical market trend response designed to make daily strategic allocations with the aim to generate returns even when the broader market is declining,” the release said.

“Traditional value indexes often lead to persistently overweighting specific sector allocations,” said Siegel in a prepared statement.

Athene USA, an Iowa-domiciled corporation, is the U.S. holding company for Athene’s annuity operations in the United States. It is headquartered in West Des Moines, IA.

Transamerica index annuity adds NYSE Expanded Opportunities Index

The new Transamerica Secure Retirement Index II Annuity offers performance linked to the NYSE Expanded Opportunities Index, which mimics the advanced quantitative finance techniques used by Morgan Stanley Investment Management to manage assets for large pension funds, endowments and other institutional investors worldwide, Transamerica and Annexus said in a release.

The NYSE Expanded Opportunities Index is administered by ICE Data Indices, part of the Intercontinental Exchange, which is the parent company of the New York Stock Exchange.

Enhancements were also made to the Transamerica Income Plus living benefit. It now offers a lifetime income guaranteed that grows during the first 10 policy years at a 10% simple annual rate in each policy year without a withdrawal. Once withdrawals begin, the annual income will be paid for life.

Transamerica Income Plus is available with both Transamerica Secure Retirement Index Annuity and Transamerica Secure Retirement Index II Annuity for a 1% annual fee based on the withdrawal base. The fee is deducted from the policy value.

The guaranteed lifetime withdrawal benefit will not increase in any given year in which a withdrawal is taken, if it is after the 10th living benefit anniversary or prior to age 50.

© 2019 RIJ Publishing LLC. All rights reserved.

Honorable Mention

Posted on March 28, 2019 by -

Ubiquity raising $19 million to finance small plan recordkeeping software

Ubiquity Retirement + Savings, a fintech provider of flat-fee retirement plans to small businesses, is nearing $19 million in Series D funding led by existing investors who have invested in the firm since its beginnings 20 years ago, the company announced this week.

The fresh capital will financed the development of Paradigm RKS, Ubiquity’s proprietary, cloud-based, automated recordkeeping system for the historically underserved small business market. The founder and CEO of San Francisco-based Ubiquity is Chad Parks.

Third-party administrators, recordkeepers and financial institutions serving the small business market will soon be able to license Paradigm on a business process outsourcing (BPO) and Software as a Service (SaaS) basis. It can be useful to providers that lack the infrastructure to serve the small plan market, or have less efficient legacy systems and processes.

Gen-Xers are a lost generation in the workplace: MetLife

The retirement plight of Gen X—a group now ages 38 to 53, who accounts for a third of the U.S. workforce, or 53 million people—has been upstaged by that of Boomers and Millennials, according to MetLife’s 17th Annual U.S. Employee Benefit Trends Study (EBTS).

“The impacts of this neglect are real: Gen X employees not only feel significantly underappreciated at work and engage at lower rates than Millennials, they also lag both Boomers and Millennials in key financial security indicators,” MetLife said in a release.

The research, like other studies of this type, helps make a case for “financial wellness” plans. These optional services, now seen by many big plan recordkeepers as a competitive necessity, typically help employees cope with debt, improve financial literacy, and deal other challenges that might hinder saving for retirement.

According to the survey:

  • 59% of Gen X workers are confident in their finances, compared to 67% of Millennials and 65% of boomers, the release said. Only 53% of Gen X workers have at least three months of salary on hand for emergencies, compared to 58% of Millennials and 60% of Boomers.
  • 68% of Gen X workers report being happy at work, compared with 75% of Millennials and 74% of Boomers. Only 54% of Gen X workers feel empowered at work and 62% feel respected in the workplace, the MetLife research found.
  • More Gen X workers than Millennials believe “employers are not providing timely promotions, exposure to senior leadership, and meaningful work projects,” the survey showed. But only 18% of employers believe it a priority to create an inclusive environment for all generations.
  • 18% of Gen X employees do not plan to retire, compared to 14% of Millennials and 12% of boomers. More Gen X workers (55%) are behind on their retirement savings than Millennials (49%).
  • When asked to decide between “better benefits or more flexibility,” 57% of Gen X workers chose better benefits such as paid leave, financial wellness programs, legal plans, supplementary health and disability insurance provide resources, compared with 48% of Millennials.

“Eighty percent of all employees want financial wellness programs available to them through work, yet just 20% of employers offer this benefit,” MetLife said.

Roughly two-thirds of Gen X workers say their employers do not provide people management and development skills training or learning opportunities to adapt to technology innovations, yet only 29% of employers consider “up-skilling” current workers.

Engine, a market research firm, conducted MetLife’s 17th Annual U.S. Employee Benefit Trends Study (EBTS) in October 2018. The survey covered companies with at least two employees and included 2,500 interviews with human resource decision makers and influencers and 2,675 interviews with full-time employees, ages 21 and over.

Betsy Palmer takes top communications job at AIG

American International Group has appointed Betsy Palmer has been appointed senior vice president and Chief Marketing Strategy, Communications and Industry Leadership Officer of the insurer’s Life & Retirement division, AIG announced this week.

Palmer will be based in New York, join the Life & Retirement Executive Team, and report to Kevin Hogan, CEO, Life & Retirement. She will lead marketing, communications, stakeholder management, industry thought-leadership, sponsorship and brand positioning activities across Life & Retirement. She will also serve as the Life & Retirement organization’s primary spokesperson.

Palmer joins AIG from TIAA, where she was senior vice president and chief communications officer since 2010. Her previous experience also includes senior marketing and communications roles with EY, BearingPoint and AT&T.

Earlier, Palmer served in communications roles at the U.S. Department of Energy and the White House. She holds a Bachelor of Arts in foreign affairs from the University of Virginia.

New 3.05% fixed income option for retirement plans from Principal

Principal Financial Group has launched the Principal Guaranteed Option (PGO), a new fixed income investment option with a current (March 1 to May 31, 2019) guaranteed crediting rate of 3.05% that will be available to advisors and sponsors of retirement plans.

According a release, PGO offers:

Capital preservation: Seeks to preserve capital and provide a compelling guaranteed credit rate over a full interest rate cycle.

Portability: Customers can maintain interest in PGO even if the plan moves to a new recordkeeper.

Accessibility: Available for 401(k), 401(a)-DC, 403(b) and governmental 457(b) plans.

Guaranteed rates: Crediting rates reset every 6 months.

Solid backing: The guarantees are supported by the multi-billion dollar general account of Principal Life Insurance Company

Rate level flexibility: 14 rate levels available

Regarding rate levels, “As a general account backed guaranteed product, PGO does not have expense ratios,” a Principal spokesperson told RIJ. “The 14 rate levels are available service fee selections that a plan fiduciary can select as part of their overall fee arrangement for the plan to pay for recordkeeping and administrative services provided to the plan.

“The rate level service fee the plan fiduciary selects is deducted from the overall crediting rate for the product, resulting in a net crediting rate that will apply to the plan. For example, the overall crediting rate for the product is 3.05%. If a plan fiduciary elected 0.25% to be deducted to pay for administrative and recordkeeping services to the plan, the resulting net crediting rate for the plan would be 2.8%.”

Principal has developed a new online resource hub for advisors to support their conversations with plan sponsors about fixed income investment options. Features include videos, fact sheets, articles and client-ready materials. Advisors are encouraged to visit principal.com/fixedincome.

MassMutual launches new investment platform for DB plans

MassMutual is launching a “new, expanded and more flexible” investment platform developed with Matrix Financial Solutions, Broadridge company, and designed for defined benefit (DB) pension plans, the mutual life insurer announced.

Financial advisors and plan sponsors can use the platform to access enhanced reporting and on-line functionality, find additional registered investment options, and customize investment offerings, a release said.

The platform is “the latest installment of MassMutual’s longer-term strategy to… support larger pension plans of $200 million or more,” said Michael O’Connor, head of MassMutual’s DB business. MassMutual serves more than 2,600 DB plans totaling more than $20 billion in assets under administration as of Dec. 31, 2018.

The new platform offers self-service reporting capabilities for simplified administration.  Sponsors and advisors can generate reports on trusts, measure investment performance against benchmarks, and create custom reports on individual plans.

The company recently launched its PensionSmart Analysis tool, which examines the plan’s current status, funding level, and service structure. MassMutual’s pension experts can then assess the pension plan’s health. MassMutual has also introduced customized pension yield curves to help plan sponsors measure their pension obligations.

Matrix Financial Solutions is a leading provider of TrueOpen retirement products and services for third party administrators, financial advisors, banks and other financial professionals. It servs more than 400 financial institutions with over $300 billion in customer assets processed through its trading platform.

Stephen Grourke to lead fund-raising at The American College

Stephen J. Grourke, CAP, CFRE, has been named as senior vice present for advancement and alumni relations at The American College of Financial Services, effective April 1, 2019, college president and CEO George Nichols III announced this week.

Grourke will lead the Advancement team, charged with raising funds for the college, and will oversee The College’s current $17.5 million fundraising campaign projected to successfully conclude in 2020. Grourke was most recently executive director for the Office of Estate and Gift Planning at Villanova University.

Prior to Villanova, Grourke spent over a decade at The Nature Conservancy, the world’s leading conservation organization, where he served in a variety of capacities around the country, including associate director of philanthropy in Idaho and director of philanthropy operations in Pennsylvania.

Grourke earned a bachelor of arts degree from Gwynedd-Mercy University and a master of public administration from Eastern Washington University. He holds the Chartered Advisor in Philanthropy designation from The American College of Financial Services, and is a Certified Fund Raising Executive.

NFP to acquire Bronfman Rothschild, merge it with Sontag Advisory LLC

NFP Corp., the large insurance broker and consultant and provider of wealth management, retirement and estate planning to high-net-worth individual clients, said it intends to acquire wealth advisory firm Bronfman E.L. Rothschild, LP.

Upon completion of the acquisition, NFP will integrate Bronfman Rothschild with Sontag Advisory LLC (Sontag), its New York-based wealth management subsidiary. Subject to satisfying closing conditions [and receiving regulatory approval], the transaction is expected to close in the second quarter of 2019.

The combined entity will manage about $10 billion for individual and institutional clients. Howard Sontag, chairman of Sontag, will become chairman of the combined entity; Mike LaMena, president and chief operating officer of Bronfman Rothschild, will become chief executive officer; and Eric Sontag will become president and chief operating officer. A new brand strategy for the combined firms will launch later in 2019.

Bronfman Rothschild is an independent Registered Investment Advisor based in Rockville, Maryland, with offices throughout the Midwest and East Coast.

Sontag Advisory, an NFP Corp. subsidiary, is a New York City based, independent registered investment advisory firm that serves clients in more than 30 states. Recently NFP was named the second largest retirement plan aggregator firm, as ranked by Investment News and the fifth largest US-based privately owned broker.

Ascensus continues to expand by acquisition

Ascensus, the retirement plan recordkeeping and administration specialist, has agreed to acquire Wrangle, the Junction City, OR-based provider of health and welfare Form 5500 filing services to employee benefits brokers and plan sponsors. The services include collecting information from carriers, managing schedules and deadlines, and e-filing information with the Department of Labor.

ERISA compliance, plan documentation, filing, and related services have been among Ascensus’ Retirement, Health, and TPA Solutions business segments have historically provided ERISA compliance, plan documentation, filing and related services.

Ascensus expanded its benefit administration offerings in 2018 by acquiring Chard Snyder and Benefit Planning Consultants, Inc., which provide consumer-directed healthcare administration (e.g., health savings accounts, flexible spending accounts, and health reimbursement accounts) and benefit continuation services (e.g., Consolidated Omnibus Budget Reconciliation Act and retiree billing administration).

“Wrangle owns an almost 25% market share in providing health & welfare Form 5500 solutions and has long-standing relationships with the nation’s largest employee benefits brokers,” says Raghav Nandagopal, Ascensus’ executive vice president of corporate development and M&A., in a release.

© 2019 RIJ Publishing LLC. All rights reserved.

Lessons from a Living (DC) Experiment

Posted on March 28, 2019 by -

Much of the retirement debate in the US today swirls around the “coverage gap.” That’s shorthand for the fact that, at any given time, as many as half of the full time employees in the US don’t have access to an employer-sponsored retirement plan at work. Low-income and minority workers are most likely to fall into that gap.

To shrink the gap, some states have moved to require companies without plans to enable their workers to enroll in state-sponsored IRAs. At the federal level, some large 401(k) service providers want to bundle dozens or even hundreds of small companies and their workers into low-cost “open multiple employer plans.”

Israel has addressed the coverage problem since 2008 with a nationwide mandatory defined contribution (DC) program. All employers and employees must contribute a combined 12.5% of the employee’s pay to a tax-favored savings vehicle of the employee’s own choosing. Employers must also contribute an additional 5% of pay to an unemployment fund that, if unused, can supplement pension savings. Self-employed workers must now contribute too.

Israel and the US are very different, of course. In population, Israel is only a shade larger than New York City. Its fertility rate, fueled by large orthodox Jewish and Arab families with stay-at-home moms, is higher, so as a nation Israel is demographically younger than the US. Its basic old age pension is relatively skimpy when compared with Social Security.

But, in terms of retirement challenges, Israel resembles the US. Ten years ago, a large percentage of its workforce, especially low-income and minority employees at small companies, weren’t participating in a formal tax-deferred plan. With life expectancies rising and the danger that large numbers of elderly would need public assistance, the government had to decide whether to enhance its tax-funded pension or require more private saving. It chose the latter option.

With a Social Security funding shortfall looming in 2034, the US will find itself at a similar crossroads relatively soon. Could some of the lessons that Israel has learned from its decade-long experiment with mandatory DC apply here in the US? As RIJ learned from talking with several of Israel’s retirement experts, mandatory DC is no panacea. A savings mandate can’t magically resolve all of the behavioral, economic, or administrative issues that prevent low-income and minority workers from saving. For some workers, it could make life worse.

Are Israel’s reforms a success?

One of the original advocates of mandatory DC in Israel was Avia Spivak, a now-retired pension specialist at Ben Gurion University of the Negev in Beer Sheva, the largest city in Israel’s arid south. His research for the Bank of Israel showed that poor people in Israel weren’t saving. RIJ asked Spivak if he thought mandatory DC in Israel has been a success.

Avia Spivak

“It’s a mixed bag,” Spivak said in a recent phone interview. “From a coverage standpoint, yes. On the one hand, 70% or more of Israeli employees are now covered by a plan. This is compared to 35% to 40% before 2008.

“Coverage, as you might expect, is associated with higher socioeconomic status. In the first [lowest] quintile of wealth, fewer people are covered. If you’re in the lower quintiles, you don’t get the income tax benefit from saving because you’re below the tax floor. The first problem for defined contribution systems is enrollment. We solved that with the mandatory pension,” he said.

Coverage and participation rates are just half of the story, however. Savings at retirement will, ideally, support a retiree’s pre-retirement lifestyle. RIJ asked Spivak if Israelis are now saving enough to retire on.

“It’s not clear whether [mandatory DC has been] successful in that way or not,” he said. “The amount saved so far in the new pension funds is not what we expected. That’s a real problem. The newness or immaturity of the system explains part of that, but there are still specific people, age 40 or more, who haven’t saved enough. Given the number of years that have passed [since 2008], the size of the funds is less than you’d expect. Money may have gone into other forms of long-term saving. But we don’t have data on that.”

The mandatory DC program, which also includes mandatory minimum contributions, target-date default funds, and mandatory partial annuitization of money saved under the program since 2008, was introduced gradually and has been embraced in Israel, according to Spivak.

“Some economists criticized [mandatory DC at the beginning],” he said, “but it has been very popular. When I run satisfaction surveys, 75% to 80% of the people surveyed say they are satisfied or very satisfied with the system. In the same surveys, we asked people if they would prefer to manage their retirement funds themselves. Only 20% said they would.”

For low earners, the system can backfire

By all accounts, the mandatory system is working well for well-paid, well-educated employees, many of whom had defined benefit pensions coverage before 2008. The system hasn’t necessarily been as effective among low-income and minority workers at small companies.

Research shows that mandatory savings can backfire on workers, especially on those who earn just above than minimum wage. Like low-income workers in the US, they benefit little or not at all from the tax incentives that Israel offers savers. Economic analyses also suggest that all of the mandatory contributions (17.5%), including the employer contribution, come out of their pay, unless they already earn the minimum wage. At retirement, they may receive a lower safety-net pension than if they hadn’t saved at all.

Adi Brender

These have been among the research findings of Adi Brender, an analyst at the Bank of Israel who spoke with RIJ recently. In a 2011 paper, he wrote: “The mandatory pension arrangement has a particular negative effect on workers whose income is below the tax threshold and those whose spouses do not work.”

“There is a large group of workers whose income remains low for most of their working lives and their spouses do not work,” Brender found. “Since the NII pensions [the universal means-tested old age insurance] provide a reasonable solution for these workers during retirement, saving for retirement is not desirable for them. These workers are the vast majority of the mandatory pension’s target group.”

Maya Rosen

Nadav Steinberg, another economist at the Bank of Israel, told RIJ, “Everyone agrees that for people with low salaries, mandatory defined contribution might be problematic. Statistically, there are two populations who are relatively low income, the ultra-religious Jewish men and Arab women, because they have a lower rate of employment relative to the rest of the population.”

Two other aspects of Israel’s retirement program have also encountered difficulty. In Israel, participants are free to choose from a range of savings vehicles and providers. These include (roughly in order of risk, expense and sophistication) pension funds (which allow investment in guaranteed-return government bonds), “provident funds” (similar to mutual funds) and “manager’s insurance” (a more expensive, more personalized bundle of life, retirement and disability insurance). As in the US, target date funds, chosen by the employer, may be used as a default investment for employees who don’t choose an investment.

Reports on the success of this policy are mixed. Competition among providers is said to have brought fees down, but at least one source claimed that fees are reported to have rebounded a bit as providers compete on brand strength rather than price. One source claims that it’s easy for employers to send salary deferrals to many different investment providers, but another says that small employers might simplify their payroll chores by encouraging workers to use a target-date fund chosen by the employer.

Employers might even avoid participation in the mandatory program,  Brender’s research suggested, because they recognize that saving may not be in the best interest of low-paid employees who are already living hand-to-mouth. In short, mandating DC doesn’t magically eliminate or solve every administrative, economic or behavioral issue that stands in the way of full pension coverage and the achievement of an adequate retirement income.

Nadav Steinberg

“There’s the law and then there’s what actually happens,” said Maya Haran Rosen of the Bank of Israel. “The law says that the employee chooses his or her investments and the employer can’t influence their choices.

“But the employer can choose certain funds as the default fund, and people tend to take the default,” she added. “Conflicts of interest can also occur and the employer might prefer it if the employees choose a specific fund where there are less operational costs for him. There are now new default funds for the general public with very low administrative fees that are open for everyone, including low earners, and we can see a reduction of the average fees for all the population.”

Room for improvement

Every prudent-sounding rule seems to create winners and losers. Recognizing that mandatory saving would have little impact on longevity risk without mandatory annuitization, Israel insists that participants annuitize at least enough of their post-2008 tax-favored savings to produce a monthly income of 4,400 shekels or about $1,200. The rest of savings can be taken as a lump sum (with different tax treatment of annuitized wealth and lump-sum payouts).

This seemingly prudent policy will effectively require most of Israel’s low-income retirees to annuitize all of their post-2008 savings. For high-earners, it may counter-productively create a problem known in behavioral finance as “anchoring.”

Orly Sade

“Once regulators impose a minimum level for the annuitization amount, individuals may ‘anchor’ to that number. They may view that as an educated suggestion,” said Orly Sade, a pension specialist at Hebrew University in Jerusalem. “If you set the standard amount too low, then people who were considering taking higher percentage of their savings in an annuity prior to that law, might anchor to that value and take a smaller percentage of annuity, after the initiation of the law.

“Eventually this may be lower than what they need,” she told RIJ. “My research with Abigail Hurwitz and Eyal Winter from the Hebrew University suggests that the public views the constraint as a message. If you put in a low constraint, annuitization will converge on it. We aren’t sure why they set the annuitization amount at about 4,000 shekels. Maybe it was relatively close to the minimum wage.”

Interestingly, the reluctance to annuitize retirement savings that researchers have found in the US and other countries—the “annuity puzzle”—barely exists in Israel, Avia Spivak has written. “Withdrawal preferences in Israel differ from those documented in other countries, as expressed by the tendency to prefer annuitization over receipt of a lump sum,” he and his co-authors wrote in a 2015 paper.

“Israelis seem to trust the system,” Spivak told RIJ in an interview. “That may seem a little odd, but this is Israel.” Israelis, despite their internal political divisions, are unified by external military threats and quite literally rely on the government for their security. “We trust the system because we have to trust the system,” he said. “This system is the lesser of all evils. But there’s room for improvement.”

© 2019 RIJ Publishing LLC. All rights reserved.

Symetra Trek: The Latest Structured (or RILA) Annuity

Posted on March 28, 2019 by -

Symetra Life has become the latest US annuity issuer to bring to market a registered index-linked annuity (RILA), also known as a “buffered” annuity. The product offers five distinct index options, one-year performance caps as high as 15.0%, and protection against either up to or beyond a 10% annual loss.

The product is called “Symetra Trek.” According to the issuer, it offers significant free withdrawals during the six-year surrender charge period, and a one-year point-to-point interest crediting method with either a “buffer” (where the issuer absorbs an annual index drop of up to 10%, but no more) or a “floor” (where the contract owner absorbs an annual index drop of up to 10%, but no more).

Or, as the Symetra Trek product rate sheet explains, “The Buffer provides protection against the first 10% of index losses for each interest term. Losses beyond 10% will reduce the indexed account value. The Floor limits index losses to a maximum of 10% for each interest term. Losses of less than or equal to 10% will reduce the indexed account value.” A product prospectus is available.

The five indices are: S&P500, Russell 2000, NASDAQ-100, MSCI Emerging Markets, and PIMCO Equity Fusion Index. The current one-year cap rates for the performance of those indices are higher for the buffer option, at 12.75%, 12.75%, 13.0%, 15.0% and 13.75%, respectively. The index caps on the floor option are 10.25%, 10.25%, 10.25%, 12.50% and 11.25%, respectively. The guaranteed fixed account rate is 1.60%.

Symetra is touting the availability PIMCO Equity Fusion Index as one of the special features of this contract. As of the end of February, this index was composed of technology-focused equities (30%), US large cap equities (25%), US small cap equities (25%) and emerging market equities (20%).

Since 2011, several life insurers have issued RILAs, including AXA, the product pioneer and category sales leader; Brighthouse (formerly part of MetLife), issuer of the top-selling RILA contract (advertised on TV during this month’s NCAA basketball tournament); Allianz Life, CUNA Mutual, Lincoln Financial, and Great American.

Some RILAs are available with three-year, five-year or six-year terms, in addition to the one-year term, but Symetra, a subsidiary of Sumitomo Life based in Bellevue, Washington, offers only a one-year term on the Trek contract.

“We always measure performance one year at a time,” said Kevin Rabin, vice president of Retirement Products, in an interview. “Certain of our bank and broker-dealer partners require that products have no more than a one-year term. The client gets 10% buffer or floor protection each year. He or she can rebalance every year.

“There are no fees embedded in the product, which capitalizes on our commitment to transparency. There’s an attractive liquidity feature. It gives the contract owner the ability to take out up to 15% of the contract value each year [during the six-year surrender charge period] or all the interest earned in the previous year, penalty-free. That’s a first in this category.

“There’s a clear need in the marketplace for both the buffer and floor strategies. In the beginning [2011], the product category was focused on the buffer. But we heard loud and clear that it was important to offer both floor and buffer protection options,” Rabin told RIJ. While the buffer option exposes the client to severe equity market drops, those drops are relatively rare, and the buffer’s performance caps are about 2.5 percentage points higher than the floor option’s.

“The demand for [Symetra Trek] isn’t coming from the ‘safe money’ people,” he said. “It’s coming from people who have a higher risk tolerance profile. This product is primarily for equity investors who want to manage their downside risk, not people who want a safe investment that has more return potential than bonds.

“Those folks can live with downside risk,” Rabin added. “They can even live with the ‘tail risk.’ They understand that the market has rarely been down more than 10% in a 365-day period. They know that the 10% buffer has covered many downside situations. This product offers a natural transition for someone who wants to dial down his or her equity risk rather than dial it up. It doesn’t replace a diversified portfolio. It’s one more sleeve, with a different risk profile, within a diversified portfolio.”

© 2019 RIJ Publishing LLC. All rights reserved.

AIG tops annuity sales for first time since 2007: LIMRA

Posted on March 21, 2019 by -

For the first time since 2007, AIG Companies has taken over as the top seller of annuities, according to a report released today by LIMRA Secure Retirement Institute (LIMRA SRI). Aside from a new sales leader, there are two new companies in this year’s top five compared to 2017 sales.

[Read an interview with AIG’s individual retirement chief Todd Solash in the March 14 issue of RIJ.]

The top five sellers of total annuities in 2018 representing 32% of market share were AIG Companies, Jackson National Life, New York Life, Lincoln Financial Group and Allianz Life of North America. The top 10 companies held a 53% market share in 2018.

Kevin Hogan, CEO, AIG Life & Retirement, said in a statement, “I am really proud of our entire team, who do an outstanding job leveraging our broad product expertise and diversified distribution network to meet the evolving needs of our customers.

“Our strategy is not about market share but instead to be in a position to compete at scale in each of our businesses. We have a strong presence across fixed, index and variable annuities, and we’re pleased the market has responded so positively to our offerings. I am also very proud of our distribution partners, and look forward to continuing to work closely with them to advance our mission to help people achieve financial and retirement security.”

 

 

 

 

 

 

 

 

Fixed annuities not only had a record breaking sales year, but they also have a new sales leader. According to LIMRA SRI research, this is the fourth consecutive year that annual fixed annuity sales surpassed $100 billion.

The top three sellers of fixed annuities in 2018 were: AIG Companies, New York Life and Allianz Life of North America, representing a combined 24% market share. The top 10 companies held 55% of the market.

This was the first time in six years total variable annuity (VA) sales grew. The three top sellers of variable annuities were: Jackson National Life, AXA US and TIAA, representing a 38% market share. The top 10 companies held a 78% market share in 2018.

To view the entire list of rankings, please visit LIMRA’s Data Bank.

© 2019 RIJ Publishing LLC. All rights reserved.

Fixed Annuities, Unchained!

Posted on March 21, 2019 by -

Fixed deferred annuities, which were once eclipsed by variable deferred annuities, confined to the insurance agent channel, and threatened by federal regulation, have emerged as the chief bread-winners for many life insurers.

And American International Group (AIG), stuck in the morass of the financial crisis for years, emerged as the top issuer of fixed annuities at the end of 2018.

Total fourth quarter 2018 non-variable (fixed and structured) deferred annuity sales were $32.6 billion; up more than 10.1% from the previous quarter and up more than 54.4% from the same period last year, according to the latest edition of Wink’s Sales & Market Report.

Total non-variable deferred annuities sales for 2018 were $113.6 billion, up 29.1% over the previous year, according to Wink Inc.

The non-variable deferred annuities in the study included indexed annuities from 68 issuers, traditional fixed annuities from 54 issuers, and multi-year-guaranteed annuity (MYGA) contracts from 68 issuers and structured (buffered or index-linked) annuities from 10 companies. Wink did not report sales of single premium immediate annuities or deferred income annuities.

AIG ranked as the top carrier overall for non-variable deferred annuity sales in the fourth quarter of 2018, with a 9.8% market share. Allianz Life, Global Atlantic Financial Group, Athene USA, and Massachusetts Mutual Life Companies followed.

Allianz Life’s Allianz 222 Annuity, an indexed annuity, was the top-selling non-variable deferred annuity in the fourth quarter. It was also the top-selling indexed annuity in overall sales for all channels combined for the eighteenth consecutive quarter.

Indexed annuities

Indexed annuity sales for the fourth quarter were $19.2 billion; up more than 8.4% from the previous quarter and up 40.9% from the same period in 2018. Total indexed annuity sales for 2018 were $68.4 billion, an increase of over 26.8% from the previous year. Indexed annuities have a floor of no less than zero percent and limited excess interest that is determined by the performance of an external index, such as the S&P500.

“While sales were down for 2017 because of the Department of Labor [fiduciary rule], 2018’s sales have more than made-up for 2017’s loss,” said Sheryl J. Moore, president and CEO of both Moore Market Intelligence and Wink, Inc., in a release.

Allianz Life once again sold the most indexed annuities, with a market share of 13.6%. Athene USA, AIG, Pacific Life Companies, and Nationwide followed.

Multi-year guaranteed annuity (MYGA) sales

Multi-year guaranteed annuity (MYGA) sales in the fourth quarter were $12.2 billion; up over 12.3% from the previous quarter and up more than 81.3 % from the same period last year. Total MYGA sales for 2018 were $41.3 billion, up 36.1% from the previous year. MYGAs have a fixed rate that is guaranteed for more than one year.

“Every company in the top 15 experienced increases in MYGA sales; that is unprecedented,” Moore said.

New York Life sold the most MYGA contracts, with a 13.0% market share. Global Atlantic Financial Group, AIG, Massachusetts Mutual Life Companies and Symetra Financial followed. Massachusetts Mutual Life Stable Voyage 3-Year contract was the top-selling MYGA for the quarter, for all channels combined.

Traditional fixed annuities

Traditional fixed annuity sales in the fourth quarter were $1.1 billion; up 15.9% from the previous quarter, and up more than 56.8% from the same period in 2017. Total traditional fixed annuity sales for 2018 were $3.8 billion, up 5.1% from the previous year. Traditional fixed annuities have a fixed rate that is guaranteed for one year only.

AIG sold the most traditional fixed annuities in the fourth quarter, for a 13.1% market share. Jackson National Life ranked second, followed by Modern Woodmen of America, Global Atlantic Financial Group, and Great American Insurance Group. Forethought Life’s ForeCare fixed annuity was the top-selling fixed annuity for the quarter, for all channels combined, for the eleventh consecutive quarter.

Structured annuity sales

Sales of structured annuities, which have wider range of risk and return than conventional index annuities, were $4.1 billion in the fourth quarter of 2018, up more than 19.4% as from the previous quarter. Total structured annuity sales for 2018 were $12.2 billion. This is the first year that Wink has reported on structured annuity sales.

Noteworthy highlights for structured annuities in the fourth quarter include AXA US ranking as the top carrier in structured annuities, with a market share of 40.8%. Brighthouse Life Shield Level Select 6-Year was the top-selling structured annuity for the quarter, for all channels combined for the fourth consecutive quarter.

Wink will add a variable annuity sales report to its fixed annuity report beginning in the first quarter of 2019. The firm intends to issue sales reports on additional product lines in the future.

© 2019 RIJ Publishing LLC. All rights reserved.

Side-by-Side Comparison: A VA Minimum Accumulation Benefit Rider vs. an Index Annuity

Posted on March 21, 2019 by -

Let’s imagine that one of your advisory clients is nearing retirement and wants protection against sequence-of-returns risk, a danger as treacherous to 60-something investors as, say, the cataracts of the Nile were to 19th-century British explorers like John Speke and Richard Burton.

In less adventurous terms, those clients simply want to protect their nest eggs against the potential impact of a major market downturn as they pass through what one life insurer has dubbed the “Retirement Red Zone.” As a rule of thumb, the zone of peril begins about five years before the start of retirement and ends about five years afterwards.

Variable annuities (VAs) with guaranteed minimum accumulation benefits (GMABs) and fixed indexed annuities are two competing types of annuities that can protect a client’s principal from loss during the red zone decade, while still allowing a chance for growth—more growth, potentially, than a plain-vanilla fixed-rate annuity could offer.

The upside potential of these products comes from their direct or indirect links to the equity markets. A variable annuity with GMAB offers direct investment of principal in trusts that closely resemble mutual funds but with different tax treatment. Typically, the GMAB rider restricts the degree of equity exposure, however.

A fixed indexed annuity works very differently. Premium is invested mainly in the insurer’s general account but also in options on the equity market. If the stock market goes up, the options appreciate and generate gains. If the market goes down, contract owners can rely on the yield of the bonds in the general account to at least keep them whole.

Which of the two types of annuity contracts was better able to offer both downside protection and upside potential across 10,000 randomly generated market scenarios? [Editor’s note: Insurance-licensed agents can sell FIAs but the sale of variable annuities also requires a securities license. Many, but not all, intermediaries have both licenses and can sell either product.]

To find out, CANNEX, the Toronto-based annuity data shop that has added product-comparison capabilities to its toolbox, recently compared-and-contrasted the performance of the two product types under hypothetical market conditions over a 10-year holding period. New York Life sponsored the study, in which its Premier Variable Annuity II with Investment Preservation Rider 3.0 was compared with several FIAs.

Here’s a summary of what CANNEX found:

  • A VA with a guaranteed minimum accumulation benefit (GMAB) can provide a competitive guarantee relative to an FIA with the added benefit of certainty of the pricing structure for the guarantee term and the possibility of higher upside.
  • The VA had an average annualized return of 4.99% over the 10-year period. One of the FIA strategies, using a 45% participation rate [i.e., could return up to 45% of the index return over 10 years], had an average annualized return of 5.10%, and the rest had lower returns, ranging between 2.45% and 4.54%.
  • When the VA with GMAB outperformed the FIA, the average return was at least 25% greater than the FIA in the same scenario. When the VA with GMAB underperformed the FIA, the average return was no more than 19% less than that of the FIA.
  • Compared against FIA designs with an annual point-to-point crediting strategy [where gains are credited to the account on each contract anniversary], the downside protection of the VA with GMAB does not have the same smoothing effects because the performance is measured once in the same period. This creates a cluster of results where the guarantee would be triggered and the client would receive the return of premium after 10 years. By contrast, the FIA very rarely has returns close to zero.
  • Compared with an FIA crediting strategy using a rate cap [a limit on the gain that will be credited to the account in a given period], the VA with GMAB is more likely to have higher upside. The rate cap creates a tight banding of results with less variance but also a strict limitation on upside. The VA with GMAB outperformed the FIA most of the time and, when it did, generally did so with a high margin.
  • Compared with an FIA crediting strategy using a participation rate [the maximum portion of the market gain that will be credited to the account in a given period], the VA with GMAB is not as likely to out-perform. But when it does outperform, it has the potential for greater upside.
  • To out-perform the VA with GMAB (i.e., to produce better results more than 50% of the time), an FIA strategy using a rate cap must have a cap greater than 8.25%. For a strategy using a participation rate, the participation rate must be greater than 42.30%.
  • GMAB terms are typically static for the full 10-year term, whereas an FIA issuer might change its rates during the life of the contract. In this study, it was assumed that FIA rates did not change. During poor market conditions, an FIA rate change might be to the disadvantage of the contract owner.

© 2019 RIJ Publishing LLC. All rights reserved.