In the gloomy annuity theater, registered indexed annuities have been the star of the show and, according to Cerulli Associates, the products will shine brighter and brighter over the next few years as advisors become familiar with them.
According to Cerulli, the Boston-based research firm.
The company released the findings in its report, “US Annuity Markets 2021: Acclimating to Industry Trends and Changing Demand.”
“With more brand name insurers entering the space, RILAs have captured market attention, setting new records each year,” Cerulli said in a press release announcing the report. “Sales reached $11 billion in 2018 and more than doubled in 2020 to $24 billion. Driven by awareness and understanding among brokers/dealers and advisors, large insurers entering the space and increasing supply, sales of RILA products could reach $50 billion by 2026 if trends recent ones continue.
Registered indexed annuities are tax-deferred annuities designed for retirement. They do not invest directly in stocks, but their values are linked to stock indices through options with different expiration dates, which allows the product to offer upside and downside buffers. Holders can put a floor on their losses, for example, allowing the insurance company to absorb the first 10% of a market decline. But the rise could also be capped at a 10% appreciation. These products are sometimes referred to as hybrid variable annuities and fixed index annuities, and they allow policyholders to generate tax-free growth until withdrawal.
The products were first launched in 2010 by AXA Equitable. Since then companies like Jackson National Life, Lincoln Financial, DPL Financial-Allianz Life Insurance, Athene USA, CUNA Mutual Group have entered the arena. It “took a while for other big, reputable insurers to catch on,” Cerulli said. “In 2018, RILA’s sales reached $11 billion and more than doubled by the end of 2020, reaching $24 billion.
“For some insurers, RILAs are now their flagship products, replacing [variable annuities] with living benefits,” the Cerulli report says. “Several companies have made no secret of the fact that they are using RILA to move away from risky guaranteed subsistence benefits. able to offer more attractive index capitalizations on RILAs than on [fixed-index annuities].”
Cerulli said 15 new registered indexed annuities were registered in 2021, up from five the previous year. The company said traditional variable annuities will likely account for less than a third of annuity sales in 2021, down from their 62% share in 2010.
“A potential downside of RILAs,” Cerulli said, “may be the number of potential index/credit/buffer/floor combinations in a given product. This can become overwhelming for advisors and cause them to disconnect. Cerulli would advise against insurers to overload their RILAs with features that could prove confusing even to seasoned professionals, let alone their clients.