Fixed Annuity Offerings Are Up
When reviewing the Fixed Annuity Trends chart on this page, my first reaction is to note how many insurance companies have disappeared from the fixed annuity market.
In fact, my figures show that one in five has been merged into other companies over the past five years, while the number of annuities offered has increased by nearly 14%.
Five years ago, only 20% of the companies shown in the Fisher Annuity Index offered annuities that included a market value adjustment (MVA). Now, 40% of the companies offer annuities with MVAs.
Simply put, a MVA will increase or decrease the surrender penalty, depending upon market rates at surrender compared to the contract period guaranteed rate.
Five years ago, 19% of fixed annuities included a MVA; now 34% do.
The trend is definitely on the rise for more companies to offer more annuities with a MVA.
Actuarial beliefs about MVAs can be compared to a religion. It depends on which "sect" you are in as to the values or perils of the MVA clause.
The "Believers/Actuaries" are almost rabid about their particular belief. Some believe it allows the company to pay a higher rate, while others don't.
All agree that the MVA generally allows a smaller drain on surplus and better protects the company from lapse rates during rising rate periods. Marketing firms and agents all agree that annuities without MVA features are easier to sell, but guaranteed rates, as found in "CD" type annuities can overcome the MVA obstacle.
The absolute "hottest" trend in fixed annuities is with "CD" type annuities, where the rate guarantee period matches the surrender penalty period. The number of companies offering a "CD" type annuity has doubled in the last five years.
Five years ago, only 25% of the companies offered a "CD" type annuity, but now the percentage has grown to 61%.
