Annuities take center stage
April 15, 2020 by Emile Hallez
The COVID-19 pandemic has given people many reasons to be nervous, not least of which being how it has hurt their investments and their ability to retire.
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“There’s a flight to safety,” said Sheryl Moore, CEO of Moore Market Intelligence. “If this is anything like things were in 2008 and 2009, we’re actually going to run into issues with the supply and demand of annuities.”
That will favor products like indexed annuities, but much depends on how insurance companies adjust their products in the coming weeks and whether they suspend sales on some annuities, Moore said.
“I would anticipate [that] we’re probably going to have record sales of indexed annuities this year,” she said.
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At the end of 2019, indexed annuities had an average rollup rate for their guaranteed lifetime withdrawal benefits of 6.35% — the highest it had been since 2012, according to data from Moore. Now that rate, which is used to calculate the living benefits base, sits at 5.58%, the data show. Further, the annual performance cap that insurers put on indexed annuities is now at an average of 3.37%, which is the lowest it has been since 2016, according to Moore.
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Companies have also notched down the annual withdrawal rates on products with lifetime guarantees. Those figures are based on the age at which contract holders begin taking payments. If a product previously had an annual payout rate of 5% for life, it might be at about 4% now, for example, Moore said.
For advisers, those indexed annuities are now paying smaller commissions, on average. At the end of 2019, the average commission rate was 5.74%, down from 6.23% a year earlier and 7.62% as far back as 2008, according to Moore.
Amid the market crisis this year, insurers have been “de-risking,” Moore said. That has entailed lowering the roll-up and guarantee rates, raising fees and restricting sales of some products.
