'Buy now, get income later' is becoming a sellable argument to clients
Amid all the cooling in the annuity development space, one area is picking up steam: deferred-income annuities, or longevity insurance.
On 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.
Meanwhile, in August, New York Life Insurance Co. released a variable annuity with lifetime income that comes from — you guessed it — a deferred-income annuity.
Longevity insurance, another name for deferred-income annuities, require clients to pay now for an income stream that they'll get at least 10 years into the future.
The trade-off is that clients run the risk of dying before the income stream begins, only to have their heirs receive 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 Symetra Life Insurance Co. and MetLife Inc.
With interest rates as low as they are, fixed-insurance products — including deferred-income annuities — aren't as profitable to insurers as they would be otherwise. Locking in today's low rates also could mean that clients get a smaller income payment later. Customers' longevity is the other factor into the payments clients receive.
But mutuals are able to compete against that in ways 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.
Mutuals have no problem making more-long-term bond investments to help fund these products because they're not under pressure to demonstrate improving quarterly profitability the way their stock counterparts are, she added.
Further, 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 are able to get a dividend payment 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 long for stability and predictable income.
“Rates are low, so competing products aren't looking good, either,” Mr. Hill said. A client who ladders certificates of deposit, for instance, isn't getting an attractive income 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.”
