Considerations for Insurers for Managing Annuity Products
LIMRA released its report for 1st quarter annuity sales results. It highlighted year over year sales increases across every type of annuity product. The last two years have seen a significant jump in annuity sales as improved investment yields have led to attractive fixed rate and income products. Projections suggest annuity sales into 2025 will stay strong.
AM Best recently reported that fraternal life insurers saw 16% growth in annuity deposits in 2023, while their life sales were generally slightly lower. Large and small life insurers are realizing revenue growth due to the recent boon in annuity sales. The US life insurance industry collectively had 22% more annuity deposits added in 2023 than a year earlier.
The annuity market is highly competitive. Many companies have entered this market space as they saw the ability to increase assets under management - recognizing the growing senior population with available accumulated assets and the value of annuity products in retirement and wealth planning. Well-tenured mutual and fraternal companies wanted to reverse the trend of declining membership and revenue. Asset management companies found an opportunity to leverage their expertise to create competitive products that outperformed many available products while accessing additional funds for growing their assets under management.
In reviewing recent announcements from rating agencies, there have been a few insurance companies that received lower outlooks or downgrades due to annuity business performance and/or risk management concerns. Rating agencies recognize the additional risks inherent in annuities compared to other life insurance products due to investment volatility, liquidity concerns, compliance related to consumer suitability and the competitive nature of the marketplace.
Reinsurance arrangements can be a part of the risk mitigation strategies; however, the nature of the reinsurance structure will introduce different types of risks to evaluate. Furthermore, if the majority of the risk is transferred to a reinsurer, it may be masking inadequacies within the writing company’s practices and procedures.
The growth in annuity deposits in the US confirms the value of the products for consumers that are a part of the growing segment of the population. The product serves as a dependable, predictable piece in individual financial planning.
In a competitive and growing marketplace, maintaining adequate pricing for annuities to achieve the desired sales levels and sustain financial soundness for insurers requires active ongoing management and coordination between management stakeholders responsible for actuarial, finance, investment, sales and operations. Having the right tools for harvesting and analyzing data is critical for assessing current and projected results. Validating pricing assumptions as well as weighing pricing sensitivities is necessary to ensure the products offered have a solid foundation and will enable benchmarking for performance assessment and risk management examination.
An insurer must actively and prudently manage their annuity business to assure financial sustainability and maintain the ongoing trust of its policyholders.
If your company is contemplating increasing revenue with annuity products or is not realizing the desired results with its annuity products, having a review that includes comparison to industry best practices will enable the execution for product performance management. This will lead to decision making processes with guidance and structure to enhance competitive pricing, long term value to the company, ERM practices, and product responsiveness to investment and consumer trends.
Contact Heaton Consulting if you would like to review your annuity product strategy.
Comments