More Variety = More Sales
Another cause of rising annuity demand could come from the rising and diversifying annuity supply. “Our strategy of expanding the product portfolio and distribution continues to drive meaningful progress,” says John Kennedy, head of retirement solutions distribution at Lincoln Financial Distributors, an annuities provider headquartered in Radnor, Pa. “This quarter, new products and expanded distribution drove 28% of our annuity sales.”
One example of a new type of annuity product that’s rapidly gaining market share is the structured annuity. A variation on the indexed annuity, it typically has a higher cap and, often, a “buffer” that absorbs a degree of index declines. Buffers are different from the traditional floors, because they protect annuitants only against the first 10% or so of losses. Floors, on the other hand, set a maximum downside limit. These products are specifically designed for those nearing retirement or in their first few years of retirement.
Good For The Bulls And The Bears
In a way, annuities can benefit from both a bull market and market volatility. The value of variable annuities and fixed indexed annuities tends to increase with a rising stock market, while the relative safety of fixed annuities—including FIAs—can make them particularly popular during downturns. “The rising markets have led to asset growth for consumers,” says Kennedy, “and volatility has reminded them it is important to protect their assets, especially [if they are] approaching retirement.”
If true, that means that overall annuity sales could keep growing no matter which way the markets go. “FIA sales will continue to increase due to the nine-year bull market,” says Rorar. “If there is a slight pullback in the market, people tend to get out of VAs and move into more conservative products.”
Such as fixed annuities.
Annuities are considered a safe alternative to stocks. “Market volatility is one of the primary reasons my clients give for wanting to explore annuities as an investment tool,” says Richard Dalzotto, a Pittsburgh-based registered representative with the Investment Center. “Investors seem to be slowly getting away from chasing gains and are now focusing on strategies to protect their portfolios against market loss. The recent bull run seems to be causing people to focus on preserving their current principal or protecting a stream of income so they don’t have any disruptions to their lifestyle when we enter the next bear market.”
FIAs And VAs May Remain Strong
So Dalzotto believes that both fixed-index annuities and variable annuities will continue to be strong. “Insurance companies are developing and offering products with features not available with other types of investments,” he says. “I predict that we will continue to see an increase in annuities investments for many years to come.”