a shifting landscape in the individual annuity …...equity-based insurance guarantees conference...

Equity-Based Insurance Guarantees Conference Nov. 11-12, 2019

Chicago, IL

A Shifting Landscape in the Individual Annuity Market

Todd GiesingTeddy Panaitisor

SOA Antitrust Compliance Guidelines SOA Presentation Disclaimer

Sponsored by

A Shifting Landscape in the Individual Annuity MarketTODD GIESING & TEDDY PANAITISOR

LIMRA SECURE RETIREMENT INSTITUTE

11 NOVEMBER 2019

8:30 – 9:30 AM

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Todd GiesingDirector, Annuity ResearchLIMRA Secure Retirement Institute

Teodor (Teddy) PanaitisorSenior Research AnalystLIMRA Secure Retirement Institute

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Confusion

Uncertainty

Doubt

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Understanding the past

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$257 $265$239

$222$238

$220 $230 $237 $236$222

$204

$234

$184$156

$128 $140$158 $147 $146 $141 $134

$107 $98 $100$73

$109 $111

$82 $80 $72$84

$96 $102

$116 $105

$134

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019(EST)Total Variable Fixed

$238-

$254

Individual Annuity Sales 2008-2019

$142-$154

$95-$100

Source: LIMRA Secure Retirement Institute (Dollars in billions)

10

$157.9 $147.4 $145.6 $140.5 $134.0$106.5 $98.2 $100.2

2011 2012 2013 2014 2015 2016 2017 2018 2019(EST)

Variable Annuity (VA) Sales

$95 -$100

Source: LIMRA Secure Retirement Institute (Dollars in billions)

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

Qu

art

erl

y S

ale

s (

bil

lio

ns)

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GMIB, GMWB, & GMAB riders introduced

“Rider Wars”

GLWB rider introduced

Financial Crisis

“GMIB Max”

Managed Volatility

Funds

Rider pullbacks, sales restrictions, &

buybacks

DOL Fiduciary Rule Proposed

DOL Fiduciary Rule Implemented

Tech Bubble

VA Sales Timeline

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

3,000

$0

$10

$20

$30

$40

$50

$60

$70

$80

1990 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

S&P

50

0

Qu

arte

rly

VA

Sal

es (i

n B

illio

ns)

Year

VA Sales S&P 500

VA Sales no longer in sync with equities

Source: LIMRA Secure Retirement Institute (Dollars in billions) & Oxford Economics

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$106 $96 $84 $77 $68 $48 $38 $41

$25$24 $36 $41 $44

$37 $41 $41

$27$28 $25 $22 $22

$21$19 $18

$158$147 $146 $141 $134

$107 $98 $100

2011 2012 2013 2014 2015 2016 2017 2018 2019(EST)

VA employer plan sales VA sales - No GLB, either not available or elected VA sales - GLB elected

$95 -$100$17 - $18

$36 -$38

$42 -$44

VA Sales By GLB

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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$1.9 $3.7$7.3

$9.2$11.2

2014 2015 2016 2017 2018 2019 (EST)

$14.5-$15.5

Registered index-linked annuities (RILA)

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

Qu

art

erl

y S

ale

s (

bil

lio

ns)

Total Variable Annuity Sales

VA Sales Less RILA

RILAs have propped up VA growth

If we exclude RILA’s from VA sales, VA’s would have faced a 7th

consecutive year of declines in 2018!

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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$32.2 $33.9$39.1

$47.8 $53.5 $59.1 $55.0$69.6

2011 2012 2013 2014 2015 2016 2017 2018 2019(EST)

Fixed indexed annuity (FIA) sales$78 -$83

Source: LIMRA Secure Retirement Institute (Dollars in billions)

FIA sales have shifted

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$18 $21 $22 $28 $29 $32 $26 $29$13 $12 $16

$18 $23 $26 $28$40

$32 $34$39

$48$54

$59 $55

$70

2011 2012 2013 2014 2015 2016 2017 2018 2019(EST)

Indexed employer plan sales Indexed sales - No GLWB, either not available or elected Indexed sales - GLWB elected

$78 -$83

$47 -$49

$30 -$32

Source: LIMRA Secure Retirement Institute (Dollars in billions)

2011

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FIA - With a GLB

FIA - Without a GLB

56% 42%

Market Share in

Source: LIMRA Secure Retirement Institute (Dollars in billions)

2018

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FIA - With a GLB

FIA - Without a GLB

56% 42%

Market Share in

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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What is driving record FIA flows?

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Will FIA sales overtake VA

sales?

Sort of……

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VA Sales FIA Sales

$100.2

$69.6

$184.0

$25.0

Total VA versus FIA sales

$102 to $107

$76 to $81

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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VA RETAIL Sales FIA RETAIL Sales

$81.8

$68.4 $75 to $79

$145.3

$23.7

$87 to $91

RETAIL VA versus FIA sales

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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25

$68.4

$66.5

VA Retail NEW PREMIUM FIA Retail NEW PREMIUM

$101.4

$36.1

RETAIL VA versus FIA NEW PREMIUM

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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$18.0

$19.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2013 2014 2015 2016 2017 2018 2019

VA Retail New Premium FIA Retail New Premium

$24.7

$7.3

RETAIL VA versus FIA NEW PREMIUM

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Percent of Annuity Sales - VA Percent of Annuity Sales - FIA

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Top Ten Annuity Manufacturers – 2007

Source: LIMRA Secure Retirement Institute

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Percent of Annuity Sales - VA Percent of Annuity Sales - FIA

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Top Ten Annuity Manufacturers – Q2 2019 YTD

Source: LIMRA Secure Retirement Institute

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$34.9

$24.7$29.3 $30.8 $30.9

$38.7$34.2

$45.7

2011 2012 2013 2014 2015 2016 2017 2018 2019(EST)

Fixed-rate deferred (FRD) sales $47 -$52

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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$17.5 $16.2 $16.4$23.4 $20.7 $19.7

$26.4$38.8 $34.4

$12.2 $10.8 $11.8

$10.0$5.5 $4.7

$9.1

$8.2$8.6

$29.7$27.0 $28.2

$33.4

$26.2 $24.4

$35.5

$47.0$43.0

2011 2012 2013 2014 2015 2016 2017 2018 2019(EST)

Out of Surrender Charge With Charge

Money in motion has increased for FRDs

Source: LIMRA Secure Retirement Institute (Dollars in billions)

$0.2$1.0

$2.2 $2.7 $2.7 $2.8 $2.2 $2.3 $2.4

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$8.1 $7.7 $8.3$9.7

$9.1 $9.2 $8.3$9.7 $10.0

2011 2012 2013 2014 2015 2016 2017 2018 2019(EST)

Income annuity sales

Source: LIMRA Secure Retirement Institute (Dollars in billions)

Key themes looking forwardRegulatory & Economic Environment will have a substantial impact on the annuity market

Regulatory & economic environment will have the biggest impact on annuity sales over the next 5 years

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$236.9 $235.7$222.1

$203.5

$233.7

$238 to $254 $212 to

$229

$216 to $233

$223 to $239

$230 to $247

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Overall Individual Annuity Sales Fixed Annuity Sales Variable Annuity Sales

Individual annuity sales projections

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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SEC Regulation Best Interest

NYDFS Suitability & Best Interest Regulation for Life and Annuities

On the regulatory forefront

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Uncertainties moving forward

DOL Fiduciary Rule 2.0

Individual States – Best Interest / Fiduciary Regulation

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1.52%0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017

Interest rate risk is real for manufacturers and consumers

Source: U.S Treasury

2020 2021 2022 2023

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

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Low for long is the outlook

Source: U.S Treasury & Oxford Economics

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0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

Trea

sury

Yie

ld %

U.S. Treasury Yields

3 mo 1 yr 3 yr 5 yr 10 yr 30 yr

As of 10/07/19

30-yr 2.05%10-yr 1.56%5-yr 1.38%3-yr 1.41%1-yr 1.64%3-mo 1.75%

The yield curve is much different this time

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Source: U.S Treasury

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Expected impact to the VA market

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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Expected impact to the FIA market

Source: LIMRA Secure Retirement Institute (Dollars in billions)

Key themes looking forwardGuaranteed income sales will grow, but not as fast as accumulation products

Americans buy annuities to layer on protection

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Source: LIMRA Secure Retirement Institute

Accumulation Income Later Income Now

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$60 $60$82 $90 $99 $101 $102

$125

$119 $115$106 $107 $97 $81 $65

$71

$7.6 $7.7

$8.3$9.7 $9.1

$9.2

$8.3

$9.7

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Accumulation Income Later Income Now

Growth will be minimal over the next 5 years

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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# of Americans age 55+

201178.9 million

by 2023103.1 million

201894.4 million

Source: Oxford Economics Source: Oxford Economics

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$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2010 2011 2012 2013 2014 2015 2016 2017 2018

S&P

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0

Are people nearing or entering retirement getting too comfortable the same pattern of returns will continue?

Source: Yahoo Finance

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SPIA BUYERS

71.6 72.1 72.0

2016 2017 2018

Average Age

VA GLB BUYERS

61.862.9 63.1

2016 2017 2018

Average Age

FIA GLB BUYERS

62.463.0 63.2

2016 2017 2018

Average Age

DIA BUYERS

59.160.0

61.7

2016 2017 2018

Average Age

Source: LIMRA Secure Retirement Institute

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Are Americans taking a risky bet on when to add

guaranteed lifetime income

to their portfolio?

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Jan 1968

Apr 1968

Jul 1968

Oct 1968Jan 1969

Apr 1969

Jul 1969

Oct 1969

Jan 1970Apr 1970

$0k

$500k

$1,000k

$1,500k

62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92

Source: LIMRA Secure Retirement Institute analysis. The portfolio has an asset allocation of 42.5% large company stocks, 17.5% small company stocks, and 40% intermediate-term government bonds and is rebalanced annually. The initial withdrawal amount was $1,686 per month, or for the first year $20,235 or 4.05% of beginning assets. The individual retiree withdrew the same dollar amount within each calendar year, and adjusted annually for the prior calendar year’s inflation rate.

Retirement outcomes are unpredictable

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Source: LIMRA Secure Retirement Institute

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Dear Advisor,

The 5 most valuable

services are …

Minimize risk of running

out of money

Protect portfolio pincipal

Minimize taxes

Have a more realistic

picture of life I can afford in

retirement

Maintain perspective and think clearly of events/ trends

42%

Most Valued Advisor ServicesPercent of pre-retirees

32%27% 26% 25%

Source: LIMRA Secure Retirement Institute

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Around $30 billion was paid in

guaranteed income in 2018!Source: LIMRA Secure Retirement Institute

Key themes looking forwardUnderstanding where assets will flow

$1.3 trillion!

will leave deferred annuity products in the next 5 years

Source: LIMRA Secure Retirement Institute

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58

Indexed

Fixed-Rate Deferred

Variable

Cumulative Deferred Annuity Outflows 2019-2023 (billions)

$800-$850

$200 - $225

$265 - $285

More money is leaving then entering

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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$15.7

$51.8 $55.1

$17.6$9.7

-$19.2 -$21.4 -$21.8

-$9.2-$15.6

-$58.4

-$44.7

-$25.9

-$66.5-$62.6

-$46.4-$42.6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

More money is leaving then entering

Source: LIMRA Secure Retirement Institute (Dollars in billions)

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U.S. Retirement Milestones

AGE 55If retired, may withdraw 401(k)

savings without penalty

AGE 59½ Can withdraw tax-deferred assets

without IRS penalty

AGE 62Partial Social Security benefit

eligibility

AGE 65 Medicare benefit eligibility

AGE 66-67 Full Social Security benefit eligibility

AGE 70Maximum Social Security benefit

eligibility

AGE 70½ Must take RMD (required minimum

distribution)

Help clients at key retirement milestones

Source: LIMRA Secure Retirement Institute

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LIMRAAdvancing the financial services industry by

empowering our members with knowledge, insights,

connections and solutions

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Todd GiesingDirector, Annuity Research

LIMRA Secure Retirement Institutetgiesing@limra.com

860-285-7899

Teodor (Teddy) PanaitisorSenior Research Analyst

LIMRA Secure Retirement Institutetpanaitisor@limra.com

860-285-7894