US retirement savers actively want to discuss ways to protect their assets during periods of volatility and ensure they have enough income in retirement, according to new research from life insurance and annuities provider Axa.
The results of the survey uncover several opportunities for financial professionals to explore options with retirement investors that can help give them access to market exposure via market-linked annuities over the long-term while providing some protection from downside risk, according to Axa.
The survey found that nearly 80% of individuals are interested in learning about an option that offers principal protection and the potential for growth. In this context, 73% find structured annuities appealing of which 92% say it is important to minimize the risk of losing principal and 67% also find a variable annuity with a lifetime income benefit appealing. The survey also found that 81% individuals think structured annuities are easy to understand.
On average, consumers hold less than one-half of their assets in stocks, stock mutual funds, and exchange-traded funds (ETFs). Those who have a low tolerance for investment risk have an average of 37% allocated to stocks. For very conservative investors (those with low risk tolerance and 25% or less of their investable assets allocated to stocks), the fear of losing money in the stock market and lack of trust in the stock market for money they are counting on in retirement are the most often cited reasons for allocating less of their portfolios to stocks, according to the research.
The survey also found that fear of investment loss and the risk of being under-saved for retirement can be partially addressed using financial products that provide growth and/or income, while protecting against a level of investment loss. According to the survey, 50% of investors are extremely concerned about stock market correction while 92% recognise that inflation will have an impact on their expenses.
Axa is one of the top providers in the US annuities market alongside MetLife (distributor of Shield Level Selector), Allianz Life (Index Advantage), and other sellers such as Fidelity, Voya, Lincoln Financial and Pacific Life. Axa US's variable annuity (VA) portfolio includes principal protection features and guaranteed income solutions. The insurance company is also a top provider of indexed annuities in the US market via its Structured Capital Strategies, a range of variable and index-linked deferred annuity contracts designed for investors looking to protect their assets against a loss of up to 30% as well as invest for growth, up to a cap.
Sales of indexed annuities during the first quarter of 2018 were up 11% to US$14.5bn, compared with the first quarter of 2017 and up 4% from the previous quarter, according to Limra Secure Retirement Institute's (Limra SRI) quarterly report.
For the first time in eight years the annuities market saw growth in the indexed annuity market when compared to fourth quarter, according to Todd Giesing (pictured), annuity research director, Limra Secure Retirement Institute. "This uptick in sales is a combination of an improved outlook on a regulatory front, as well as rising interest rates creating the opportunity for more attractive rates," said Giesing. "Combined with the vacated Department of Labor fiduciary rule, we expect VA sales will improve throughout the year."
Glenn Lotenberg, managing director, business development group, Advisors Asset Management (AAM), said during the 7th SRP Americas Conference on May 24 in Chicago that the FIA market has "exploded because the issuers got involved, because they are able to hedge those products".
"Unless the issuers are able to do some real serious business, this doesn't take off," said Lotenberg.
This is the second strongest start for indexed annuities since the association started tracking annuity sales. Limra SRI is forecasting indexed annuity sales will increase 5-10% in 2018 while VA sales are expected to be 0-5% higher in 2018, compared with 2017 results. In the first quarter, variable annuity (VA) sales totaled US$24.6bn, down 1% year on year. Fee-based VA sales increased 70% to US$780m in the first quarter, but still represent just 3% of the total VA market.
Structured VAs which have been renamed 'registered index-linked annuity' by Limra sold US$2.2bn, an increase of 4% compared to the same period of 2017, but sales did decline 6% when compared to the prior quarter. These products represent about 9% of the retail VA market. There are over 80 structured indexed annuities from 25 different providers registered on SRP's US database.
The research was conducted by Greenwald & Associates in the fourth quarter of 2017. Click in the link to see the white paper, Protection, Growth and Income: Helping Consumers Reach Retirement Goals, which includes the full research methodology, results and additional findings.
The survey consisted of 15-minute online interviews with 300 financial professionals with at least US$10 million of AUM and five years of experience, who have sold at least five variable annuities with either a Guaranteed Lifetime Withdrawal Benefit and/or Guaranteed Minimum Income Benefit rider in the past year.
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