Voya re-entering buffer annuity market as product popularity grows

Voya's about-face comes amid heightened regulatory scrutiny as customer complaints about buffer annuities have surfaced

May 26, 2017 @ 4:51 pm

By Greg Iacurci

+ Zoom

Voya Financial is hoping to capitalize on the recent popularity of buffer annuities by launching a product around the end of this year or early next, after having exited the market less than two years ago, and joining a small group of insurers currently offering such products.

"I think we just came to the market too early for it," said Carolyn Johnson, CEO of annuities and individual life at Voya.

"It wasn't really moving," Ms. Johnson said of product sales. Voya originally launched the annuity, called PotentialPLUS, in 2014 and closed it in October 2015. "In hindsight maybe we should have left it on [the shelf]."

However, buffer annuities, also known as structured annuities, a cross between indexed and variable annuities, have become a bright spot of sorts in an otherwise sluggish annuity market.

Variable annuity sales have been on a multi-year slide, and are forecast to dip to their lowest level this year since 1998, according to the Limra Secure Retirement Institute. Indexed annuities, which had been on a decade-long bull run, have begun to fall off of late, largely because of the looming Department of Labor fiduciary rule, which will introduce more rigorous sales standards.

And overall annuity sales in the first quarter of 2017 were down for the fourth consecutive quarter, Limra said.

Sales of buffer annuities, though, were up 60% year-on-year in the first quarter. They still only represent between 5% and 10% of the overall variable annuity market, according to Limra.

There are currently around five insurers offering buffer annuities, including AXA Equitable Life Insurance Co., Allianz Life Insurance Co. of North America, Brighthouse Financial, and Members Life Insurance Co., each of which has come to market since 2010.

Allianz this week announced the addition of two more buffer annuities to its suite.

Insurers sold $7.3 billion in structured annuities last year, double the sales from 2015 and nearly four times the total in 2014, according to Limra.

However, Voya is hopping back into the market amid heightened regulator scrutiny of these products and their distribution.

Donald Lopezi, senior vice president and regional director for the western region of the Financial Industry Regulatory Authority Inc., which oversees broker-dealers, said earlier this year that complaints about buffer annuities have started to surface and that the products are "very complicated."

"To be honest, my head spins," Mr. Lopezi said at the annual Financial Services Institute meeting in January.

Buffer annuities are similar to indexed annuities in that they traditionally provide a buffer to the downside in the event of poor market returns.

Whereas indexed annuities can't credit less than 0% over a specified time period, buffer annuities may hedge perhaps 10% to the downside, meaning the insurer eats the first 10% of losses but leaves the investor on the hook for any additional negative returns. They typically have higher caps on returns to the upside, though, than indexed annuities.

Insurers achieve this product structure through exposure to structured products.

"We have some individuals who really understand [variable annuities] and they were struggling with this," said Mr. Lopezi, whose territory encompasses all states west of Denver. "You have to wonder, does the firm understand it? Does the rep?"

The products typically have an accumulation, rather than income, focus and are categorized as a type of variable annuity because of the risk of principal loss.

Ms. Johnson of Voya said the firm conducts training with all its representatives "to ensure every adviser has product-specific training, so potential customers understand the features and benefits of any product."

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

Events

Why are most advisers stuck in the trenches?

What are top advisers doing to stand out? Scott Conroy of Carson Group offers some strategies for success.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

T. Rowe Price steps up its game to serve financial advisers

The Baltimore-based mutual fund giant is more aggressively targeting financial advisers with a beefed-up wholesale crew and placement on custodial platforms.

The most important tax changes for 2018

The Internal Revenue Service issued inflation adjustments to more than 50 tax provisions for 2018.

Shift to Roth 401(k)s 'highly likely' part of tax reform: former Treasury official Mark Iwry

Mandated contributions to Roth accounts would likely only be partial, as opposed to having a full repeal of pre-tax accounts.

E*Trade acquiring custodian Trust Company of America

Discount broker buying second-tier custodian for $275 million.

Another thousand Dow points higher, and investors yawn

Market milestones keep falling like dominoes, with 51 records broken so far this year.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print