Following the lead of other variable annuity issuers, Prudential introduces its first fixed indexed annuity.
In a move that reinforces the increasing popularity of fixed and fixed indexed annuities, Prudential Financial recently launched its first fixed indexed annuity (FIA). Distributed by the company’s U. S. annuity arm, Prudential Annuities, the PruSecure FIA is being touted as a vehicle that allows investors to take advantage of the upside of the stock market while simultaneously hedging against a downturn.
Dianne Bogoian, Head of Product for Prudential Annuities, noted in a statement that investors remain wary of the market after the 2008 financial crisis. Their concerns prompted Prudential to develop a FIA that provides “market downside protection plus upside opportunity — you don’t have to choose one or the other.”
Investors buying a PruSecure FIA have the option to choose several performance indexes against which the product’s interest rate will be set. In the case of Prudential’s FIA, the indexes center mostly on hard assets such as the Dow Jones U. S. Real Estate Index, the Bloomberg Commodity Index, and the S&P 500 index. Other features of the FIA include one-, three-, or five-year index terms with initial cap rates offering a maximum 32% return depending on the index, credit term, and surrender period. Investors can mix and match the indexes and crediting terms.
Annuity Sales Slump
Although overall annuity sales have slumped in recent years, fixed annuities and FIAs have performed relatively well. Based on data from Beacon Research and Morningstar, Inc., the Insured Retirement Institute (IRI) reports that 2017 third-quarter annuity sales declined to $43.7 billion, a 13.3% fall from the $50.4 billion posted in the second quarter of 2017 and a 14.8% decrease from $51.3 billion in the third quarter of 2016. Broken down by product type, variable annuity sales slipped to $20.9 billion in the third quarter of last year, an 11.6% decline from $23.7 billion in sales in the second quarter. Sales had totaled $25.4 billion in the same quarter of 2016, a 17.5% year-over-year decrease.
While fixed annuities also saw their sales numbers fall, the sector recorded higher sales than variable annuities in the third quarter. Fixed annuity sales reached $22.7 billion, a 15% falloff from 2017 second-quarter sales of $26.7 billion. Sales were down 12.5% from the $26 billion of fixed annuities sold in the third quarter of 2016.
Meanwhile, FIAs recorded the least decline in sales. In the third quarter, FIA sales registered a 9.2% decrease in sales between the second and third quarters, falling from $14.9 billion to $13.6 billion. According to Beacon Research, FIAs accounted for more than half of all fixed annuity sales. “While fixed annuity sales fell in the third quarter, they are still near historic highs as distribution of fixed and fixed indexed annuities continue to broaden,” Beacon Research CEO Jeremy Alexander said in a statement.
Others Insurers Enter FIA Market
Prudential isn’t the only long-time variable annuity issuer to switch over to FIAs in recent years. Investment News reports that Ohio National Life Insurance Co., AIG subsidiary Variable Annuity Life Insurance Co., Thrivent Financial for Lutherans, Nationwide, Hartford Life and Annuity Insurance Co., and Pacific Life Insurance Co. have all introduced FIAs. In 2016, MetLife, Inc. and Massachusetts Mutual Life Insurance Co. partnered on deal under which MassMutual agents would exclusively sell MetLife’s first indexed annuity product.
In the third quarter of last year, Prudential ranked sixth in total variable annuity sales at $4.2 billion, according to LIMRA. Because they are linked most closely to the stock market, however, variable annuities have drawn less interest from investors who prefer the more assured returns of fixed annuities.
That’s left traditional variable annuity carriers like Prudential looking for new product lines. “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,’ ” Sheryl Moore, President and CEO of consulting firm Moore Market Intelligence, told Investment News.The annuity market has also been roiled by possible regulatory changes, such as the Department of Labor’s fiduciary rule, which has yet to be finalized. Alexander said that the marketplace may see an upswing in sales once those concerns are settled. “As manufacturers and distributors adapt to regulatory headwinds and ambiguity in the regulatory environment is resolved, we expect to see a strong recovery in sales volume.”