Many producers and independent marketing organizations are wondering what will become of their annuity products in the wake of the July 21, 2009 federal appeals court decision remanding the Security and Exchange Commission's Rule 151A back to the SEC.
The rule seeks to classify fixed indexed annuities as securities.
Sources interviewed by Annuity Sales Buzz say they anticipate changes to product design, among other developments.
The changes may include more fixed account options and multi-year interest rate guarantees, as now offered on many traditional fixed annuities; simplified formulas for determining an indexed annuity's account value; as well as more "client-friendly" surrender charge penalties.
"I anticipate that carriers will make number of changes to the products," says Gary Raggio, a national director of annuity marketing at Dunhill Marketing & Insurance Services, San Diego, Calif. "If 151A stands, there definitely will be new product designs."
Before the unveiling of Rule 151A, sources say, fixed indexed annuities had enjoyed a growing following among independent producers. The FIA's signature benefits–a guaranteed rate of return with the potential to capture a percentage of equities-linked gains–were proving increasingly attractive to producers who wanted to offer clients a safe alternative to variable annuities.
Mark Ingersoll, a vice president at Washington Brokerage, Seattle, Wash., now expects that more indexed annuities will offer fixed account options and multi-year interest guarantees, as do many traditional fixed annuities.
The CD-like annuities typically guarantee the rate for the duration of the surrender charge period. Standard fixed annuities, by contrast, generally limit the guarantee for an initial period, with the interest rate fluctuating thereafter with market rates. Also, whereas traditional fixed products tie the interest rate to the going rate offered on Treasuries, multi-year rate guarantee annuities generally invest in higher-yielding corporate bonds, thereby permitting a higher payout on the annuity.
"The indexed products we sell that offer a fixed account option or multi-year rate guarantee are already taking off for us," says Ingersoll. "Our total annuity business is up 5 times from last year. And the indexed products account for about a third of the increased business."
Varsha Grogan, a principal at General Agents Insurance Network, Pflugerville, Tex., agrees that enhanced guarantees, among other changes to product design, can be expected. Potentially, this will enable non-securities licensed producers to continue to market FIA solutions, she says.
