Last week I attended the annual LIMRA/LOMA/SOA Retirement Conference in Chicago and I probably should have posted something about it earlier, but I wanted to allow my impressions to percolate for a bit in my mind. Thus I’m hunkering down to share my thoughts with you today.
As was the case with past conferences, I heard age-old industry catch phrases, such as “the annuity is the only game in town that guarantees retirement income,” “Americans are not saving enough for retirement,” “investors need to focus on the future income stream they’ll need rather than a lump sum they have accumulated,” “annuities are sold, not bought.”
All well and good, but I was looking to garner some new ideas or fresh spins on old ones, and, at the very least, I did manage to get some food for thought, and a few pieces of news as well.
Several emerging annuity product types were discussed, such as deferred income annuities (DIAs), which continued their rapid rise in 2013, with year-over-year sales growth of113% according to LIMRA. I learned that CUNA Mutual recently launched a DIA, called the MEMBERS Future Income Annuity, bringing the number of carriers offering such annuities, by my count, to 10. I also heard for the first time that Northwestern Mutual has both a participating DIA (one that pays the owner dividends) and one without; I had known only about the former.
A number of contacts at the conference stressed to me that DIAs are for rather specific situations; for example if a client wants to defer seven years or less before starting income, he or she would be better off buying a single-premium immediate annuity (SPIA). I concur. With a SPIA the commission to the producer tends to be lower and the income rate for the client relatively higher than a DIA. In fact some DIA providers have installed minimum waiting periods before annuitization, to discourage comp-chasing producers from buying a DIA for a client that will annuitize right away. The age of the typical DIA buyer, according to LIMRA, is in the mid to late 50s, so it looks like most are going to take advantage of the deferral aspect.
Investment-only VAs (IOVAs) were a common topic in conference sessions and informal conversations. During an elective session an executive at Merrill Lynch said that Jackson National’s Elite Access has appealed to advisors turned off by VAs loaded with guarantees and their associated fees. He added, however that Elite Access was still a small part of the wirehouse’s production: just $100 million out of a total of $3.7 billion in VAs sold last year.
In the same session I heard the sentiment that volatility-control funds are “here to stay” and I fully agree. I didn’t hear much discussion of the controversy over AXA’s $20 million fine for introducing a large number of VCFs to existing contract holders (in fact today there was a new article on the topic on Law Firm Newswire). Despite AXA’s payout, I think insurers are still investigating ways to add VCFs to their in-force contracts with vintage riders.
An innovation that has met with limited success is straight-through processing (STP) the effort toward making annuity sales entirely electronic. During a conference session executives at Lincoln National reported that just two of its broker-dealer partners allow e-signatures, and but 11% of the insurer’s new application volume is generated through STP. Much money has been spent developing the program and the Lincoln executives admitted to a little “senior management fatigue” related to it. They said New York State requires at least some paper in all annuity transactions, thus posing an automatic stumbling block to the process. It seems, however, that Lincoln is committed to STP over the long haul.
LIMRA provided a wealth of data on sales trends and VA guaranteed benefit election and usage rates. Based on the numbers I have to say that guarantees continue to be very important in the VA space, despite all the de-risking that has gone on.
LIMRA cited its 2012 benefit survey, which revealed that 92% of benefits were in the money (at an average account value shortfall of $16,300 compared to the benefit base); 75% of benefit assets were in guaranteed lifetime withdrawal benefits (GLWBs); and two-thirds of GLWB account values were in qualified money. The latter fact portends that many GLWB holders will eventually need to take required minimum distributions (RMDs). At older ages, GLWB holders show more of a tendency to take withdrawals and they usually stay within the maximum amounts allowed by the riders. Younger owners take more excess withdrawals and surrender more frequently (I assume because they have greater need for money to cover family needs or emergencies).
The lingering attractiveness of GLBs is no doubt the reason why a few insurers are weighing in with new ones. At the conference I learned from a contact that TIAA-CREF should launch its first-ever GLWB in July.
Meanwhile fixed indexed annuity providers are coming out with GLWBs and one session speaker said that these benefits often have higher base rollups and withdrawal rates than currently offered on VAs. What was not addressed was the possibility that FIA providers might repeat the same mistakes as made by their VA counterparts, and may one day be forced to de-risk as well.
A number of sessions covered a brewing challenge for the industry: the aging of the financial advisor force. It’s estimated that one third of advisors will to retire in the next few years, and there’s speculation as to whether there will be enough new hires to replenish the ranks. Moreover one wonders if baby boomers will want to work with FAs who may turn out to be younger than they are. There was a consensus at the conference that advice is still quite important in the scheme of things; however it might take new shapes in the future.
As for the future of the VA space, we took away from the conference a sense of cautious optimism. One session speaker said that, due to the unique income proposition of annuities, the future retirement marketplace is “our game to lose.” That sounded right to me, because embedded in that comment is the thought that the industry’s victory is not assured.
Therefore, moving forward, insurers will have work to do – to ensure they don’t drop the ball.
