Advisers are being pelted with a dizzying array of new insurance products.
But as quickly as products develop, so, too, do the challenges, which include evaluating carriers’ financial health and deciding which product might be favorable in a given economic environment.
“If we’re looking for one solution, it probably doesn’t exist,” said John Ameriks, a principal at The Vanguard Group Inc. in Malvern, Pa.
He spoke yesterday afternoon on a panel entitled, “Demystify the Confusion over the Newest Retirement Products” at InvestmentNews’ third annual Retirement Income Summit in New York.
“We’re going to see a shakeout of solutions out there, but there will always be the classic issue of taking the retirement money and giving it to a provider,” he said.
The realm of insurance products has grown to include deferred- and immediate-variable annuities, single-premium immediate annuities, longevity insurance and standalone living benefits.
Development in the next six months will continue to include rising guarantee costs as well as insurers’ reassessment of the products, said Tamiko Toland, editor at Annuity Insight, the variable annuity research publication from Strategic Insight Mutual Fund Research and Consulting LLC in New York.
“The appetite for the insurance company to put that capital on the line is something that’s being assessed on a company-by-company basis,” she said.
“There’s a balancing act, and the insurers are very aware of it. When the [Standard and Poor’s 500 stock index] goes below 800 and 700, that has a material effect on reserving requirements.”
Advisers in attendance raised questions about how they ought to evaluate insurers when weighing income guarantees, and they asked for ways to access carriers’ risk-based capital ratios.
Such analysis would have to go beyond examining reports form ratings agencies and talking with securities analysts, Ms. Toland said. “You don’t see any insurance companies — major insurers — that are really at risk for insolvency,” she added, noting that some isolated cases do exist.
Members of the panel also discussed obstacles in implementing annuities, such as the idea of locking in a low interest rate with a SPIA in this environment and clients’ inability to think far ahead enough to purchase longevity insurance, as well as the relative lack of popularity of the immediate-variable annuity.
Another issue raised was retirees’ preference for a lump sum of money as opposed to a stream of income, which could be behind some investors’ aversion to the products.
“The value of having the payments year after year — if you put that equation in front of someone, they want the lump sum,” Mr. Ameriks said.
The pile of assets gives them a sense of a security, he added.
Finally, panelists stressed that products alone won’t solve all of the problems.
“Let’s not forget about the old-fashioned asset allocation,” said Daniel Beckman, vice president of income planning and asset allocation at Fidelity Investments Institutional Services Co. Inc. of Covington, Ky.
“Last year wasn’t a good case for that, but in the long term, you can make the case of asset allocation as a risk management tool.”