Yesterday in The Soleares Report I posted my usual notes on quarterly earnings calls and, while writing it, came up with this blog topic, which will allow me to sneak in a post right at the end of the month. Very convenient, right?
On one of the Q2 calls I heard an executive admit something that I’ve noticed over the years but never heard mentioned quite so candidly, and that is that annuity insurers have “levers” to purposely regulate sales when they want. Certainly, the techniques aren’t entirely foolproof, but they “are a thing.”
What are a few of these? The raising or lowering of: commissions; contract fees and expenses; MYGA crediting rates; FIA caps and par rates; premium bonuses; GLWB bonuses, rollups and withdrawal rates; enhanced DCA rates (which were a bigger thing years back). Closing a hot feature or benefit can be a sure way to reduce sales. We have also seen at least one insurer put a moratorium on income 1035 exchanges, albeit temporarily.
It might be argued with all the greater complexity of annuity products today (I’m thinking FIAs and RILAs in particular here), the potential levers have only become more numerous.
Insurers will want to put a damper on sales if they are bringing in more applications than their call centers can handle (I have heard this has happened in recent years), but perhaps more to the point, they will want to avoid selling too many products that could come back to bite them later.
Let’s not forget there is a segment of the advisor population that is on the lookout for ways to game companies. The nicer term for it is “antiselection.”
It doesn’t seem to me that insurers are treading so much on thin ice as they were in years past. The latest forms of reinsurance seem to have provided a level of comfort, and cover fresh sales, allowing companies to prosecute the business assertively. We recall periods when reinsurance was impossible to obtain; it’s clear that creative minds have come up with solutions to that conundrum.
I’m hopeful that, as the industry looks at another year of sales of $400 billion, annuity players will be mindful of the kinds of dollars they are bringing in, the potential pitfalls presented by “an embarrassment of riches.” Otherwise, they will have to employ the aforementioned levers, one way or the other.
