By Steve Morelli
March 12, 2020
Annuity
companies have been cutting their minimum guarantee rates across all fixed
products – some a few times in two weeks amid the crash in equity markets and
Treasury yields, said an annuity analyst.
“I
track about 80 annuity companies,” said Sheryl Moore, CEO of Wink. “As of
yesterday, I had 75 rate reductions just since March 1.”
Guaranteed
minimum rates were as high as 3.5% and are now about 2.2%, Moore said.
Those
lower rates are sure to slam fixed annuities without indexed features.
Multi-year guaranteed annuities and other fixed products were already in the
doldrums.
Sales
were down by double-digit percentages in the first quarter for fixed nonindexed
products, said Moore, who expects to release first-quarter data on Monday.
Expect
A Rush To Safety
The
interest-rate drop complicates what is expected to be a consumer rush to
safety, just as there was after the 2008 crash. Since that recession, sales of
fixed indexed annuities have boomed, with 2019 racking up $73 billion in sales,
yet another record, Moore said.
But
that demand will come just when carriers are cutting rates as they cast an
anxious eye on their reserves because the companies will not be able to make
much money on their investments. So, agents and advisors who were not in the
annuity business during the last crash will not be familiar with working in
market with plummeting rates.
Another
complicating factor is renewal business. Much of annuity sales are 1035
exchanges from older products, but the new lower rates will make that
difficult, Moore said.
“It's a
really hard case to prove suitability to replace an in-force annuity like
that,” Moore said.
“So,
now it's hard for advisors and salespeople to justify a replacement or 1035 or
even a surrender of annuities like that in today's interest rate environment.”
What’s
Next?
The
drop in equity prices and the collapse in Treasury yields are already having an
effect on compensation.
“The
next thing I anticipate seeing is reductions in premium bonuses,” Moore said.
“Ultimately, reductions to commissions and possibly changes to repeat roll ups
on income riders, although there aren't a ton of those left. So we're
definitely seeing companies de risking or minimizing their exposure based on
where the treasuries and market volatility is affecting rates in a very big
way.”
Although
premium bonus cuts might come soon, Moore said she did not expect to see
commission cuts until the end of the second quarter, if they occur at all.
Because it is early in the year, carriers are still in the business-building
mode.
Steven
A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years
of experience as a reporter and editor for newspapers and magazines. He was
also vice president of communications for an insurance agents’ association.
Steve can be reached at smorelli@adnewsfeedback.com.
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