Prudential pivots toward indexed annuities

Other big VA carriers such as AIG and Nationwide have already seen success in the indexed annuity market

Jan 29, 2018 @ 5:26 pm

By Greg Iacurci

Prudential Financial Inc. Monday announced the launch of its first indexed annuity, the latest variable-annuity carrier to pivot toward the increasingly popular annuity.

The variable annuity market has had a rough go in recent years, having seen consecutive years of sales declines from 2011-16. Official tallies for 2017 aren't yet available, but sales will likely be down yet again — sales in the third quarter were the lowest for the product line in 20 years.

Conversely, indexed annuities have prospered — 2016 was a record year for the product line, with annual sales more than doubling since 2007 to $60 billion.

"Variable annuity sales have been impacted negatively, and you see some companies saying, 'Indexed annuity sales keep going up, maybe that's something I should be considering to replace some of that lost revenue,'" said Sheryl Moore, president and CEO of consulting firm Moore Market Intelligence.

Prudential Annuities, Prudential's domestic annuity arm, was the sixth-largest writer of variable annuities last year through the third quarter, with $4.2 billion in sales, according to the Limra Secure Retirement Institute.

MetLife Inc. and Massachusetts Mutual Life Insurance Co. entered into a distribution agreement in 2016 whereby MetLife said it would develop an indexed annuity — the company's first — that would be sold exclusively by MassMutual agents for 10 years. (MetLife has since spun off its U.S. retail business into the publicly traded company Brighthouse Financial Inc.)

Other VA providers have entered the indexed annuity market in recent years — Ohio National Life Insurance Co. in 2016, Variable Annuity Life Insurance Co., an AIG subsidiary (2015), Thrivent Financial for Lutherans (2014), Nationwide (2014), Hartford Life and Annuity Insurance Co. (2011) and Pacific Life Insurance Co. (2011)., according to Wink Inc., a market research firm.

MetLife Inc. and Massachusetts Mutual Life Insurance Co. entered into a distribution agreement in 2016 whereby MetLife said it would develop an indexed annuity — the company's first — that would be sold exclusively by MassMutual agents for 10 years. (MetLife has since spun off its U.S. retail business into the publicly traded company Brighthouse Financial Inc.)

Up to 2010, some variable annuity providers perceived a potential regulatory conundrum that prevented them from entering the market, Ms. Moore said. The products were (and still are) regulated as insurance rather than securities products similar to variable annuities, but insurers feared that would be reversed and create an ensuing headache.

Indeed, the Securities and Exchange Commission was engaged in legal proceedings to do just that, but a provision in the Dodd-Frank financial reform law known as the Harkin Amendment guaranteed that indexed annuities would continue to be regulated as insurance.

Indexed annuities have also benefited from consumers' apprehension about the stock market following the 2008 financial crisis — the products' marketing message of "downside protection with upside potential" has helped attract skittish investors.

Further, historically low interest rates during that time period caused insurers' fixed annuity business to decline — their payouts are tied directly to interest rates. This led to a situation in which variable annuity providers began turning to indexed products to make up for lost revenue, Ms. Moore said.

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