Amid all the cooling in the annuity development industry, one area is picking up steam: deferred-income annuities, or longevity insurance.
Last Monday, Northwestern Mutual Life Insurance Co. announced the release of its Select Portfolio Deferred Income Annuity. Two weeks before that, Massachusetts Mutual Life Insurance Co. introduced RetireEase Choice, another deferred-income annuity.
New York Life Insurance Co. in August released a variable annuity with lifetime income that comes from — you guessed it — a deferred-income annuity.
In this type of annuity, a client pays now for an income stream that they won't see for at least 10 years.
The trade-off is that clients run the risk of dying before the income stream begins. Heirs get nothing.
“Part of the issue is that people like certainty, and customers are trying to figure out how much they can take [in retirement] while being certain they're not going to deplete their assets,” said Tim Hill, consulting actuary and principal at Milliman Inc.
Beacon Research Inc. started tracking deferred-income annuities this year, but not all issuers are reporting sales of them yet. In the first quarter, reported sales were $155.4 million, rising to $202.7 million in the second quarter, according to Beacon's Fixed Annuity Premium Study.
Other providers in the field include MetLife Inc. and Symetra Life Insurance Co.
Low interest rates make fixed-insurance products — including deferred-income annuities — less profitable than they would be otherwise.
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But mutual insurance companies are able to hedge against that in ways that their stock-based rivals can't.
“They're expecting that rates will eventually rise and that the product will be more profitable then, even if it's some time away,” said Judith Alexander, marketing director at Beacon Research.
Mutual insurers can make more-long-term bond investments to help fund these products because they aren't under quarterly pressure to demonstrate profitability the way that their stock counterparts are, she said.
Greg Jaeck, director of annuity and income markets at Northwestern Mutual, noted that his company's product takes advantage of its ability to pay dividends.
Clients get a dividend each year, increasing their floor of guaranteed income.
To some extent, stock market volatility and low interest rates are enabling the market for longevity insurance products: Clients who are ready to retire want stability and predictable income.
But a portfolio built on laddered certificates of deposit, for instance, isn't earning an attractive return these days.
“That customer realizes they need a little more risk, and if they have this annuity covering the back-end risk of longevity, they can take it,” Mr. Hill said.
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