Winter 2010
What Comes Next? Top 10 Predictions for 2010
By Jim Teague, Vice President for Individual Annuities at The Standard
With 2009 rapidly fading in the rear view mirror, many of us are looking back as well as ahead, trying to figure out what to expect in 2010... or at least conjure up our best guesses.
Most folks in the business of selling annuities did okay in 2009, but by most accounts, the year was pretty tame compared with 2008. That means it would be unrealistic to use 2008 results to predict what might play out down the road. For example, third quarter 2009 sales for fixed annuities were down 20 percent over third quarter 2008 and also down 20 percent over second quarter 2009.
However, third quarter 2009 results were still stronger than any of the 14 quarters prior to the first quarter of 2008. Year-to-date 2009 sales (through the third quarter) were up 17 percent over the same period in 2008. What lies ahead? My best guesses are below.
Top Ten Factors that Should Influence Fixed Annuity Sales in 2010*
- Big insurance companies will begin to free up a little more capital to sell fixed annuities, but not much. Expect capacity to continue to be constrained.
- Risk-free interest rates will continue to stay low as we trudge our way out of recession.
- MVA products will continue to be the sweethearts of most annuity carriers (not necessarily consumers) as they attempt to protect themselves from rapid increases in interest rates that can cause an explosion in policy lapses.
- Indexed annuities will remain popular as consumers and brokers continue to look for recovery in the equities markets.
- The apparent extended time table for validation and implementation of SEC rule 151A will encourage even more indexed production over the near term.
- Sometime during 2010, the regulatory status of fixed indexed annuities will finally be determined. I’m going out on a limb and predicting that the final word will be had by Congress, not the courts.
- The raging debate over health care will continue, culminating in a final bill that will make its way to the President prior to Congress’ summer recess. The bill will include some form of government-provided option.
- The meteoric rise in the federal deficit and resulting debt will reach proportions that will force Congress to increase federal income tax rates and shrink the distance between the progressive brackets.
- A federal estate tax bill including both higher exemption amounts ($3.5M per person?) and higher estate tax rates will be signed into law late in the year.
- Baby Boomers who have delayed retirement because of losses in their savings and retirement accounts will begin accelerating their retirement dates if the health care bill makes health care more affordable for younger retirees.
- Bonus Prediction: The world’s number 1 golfer will not play in the Swedish Open... and he may not play in the U.S. Open!
What does all of this mean for the annuity industry?
I think the trends all line up to create another very robust year for annuities, with the potential for many more good years to follow. Retired consumers and even pre-retirees are beginning to appreciate the value of a relatively risk-free savings account that includes very real income tax preferences, along with income guarantees that only annuities can deliver.
According to industry studies most consumers want help from a financial expert. That puts the quality advisors who remain in this industry firmly in the cat bird seat. In many ways, I would love to be starting over in this industry, because I firmly believe that our best years as advisors are right now.
As for Standard Insurance Company’s annuity operation, we will continue to deliver top-notch customer service to our highly valued producers and develop new, consumer-friendly fixed annuities to take advantage of this growing market. Thanks for a great 2009 and let us know how we can help you make 2010 even better.
Best wishes,
Jim
* The value of these predictions (and probably the accuracy) is worth just as much as you paid to read this article. However, who would have predicted that the world’s number one ranking golf champion would be sailing his yacht (probably alone) this spring instead of competing for another green jacket? So, anything is possible.