5 Reasons Annuity Surrenders Can Be a Good Thing

1. A company like F&G offers a mix of products that can and can’t be surrendered.

Surrendering the ordinary nonvariable indexed annuities and registered index-linked annuities is easy once surrender charge periods are up, but the company’s immediate income annuities and the big group annuities the company sells to pension plan sponsors can’t be surrendered.

2. Product terminations are a logical response to interest rate volatility.

Blunt compared the idea of replacing life and annuity products when interest rates change to refinancing a home mortgage when interest rates change.

Right now, he said, “it’s actually smart for the customer to move into a new policy and get better terms.”

3. Terminations let F&G steer through changing economic winds.

When clients surrender annuities, they typically pay surrender charge fees. The fees increase F&G’s income.

The terminations also free up the capital supporting the annuities surrendered.

F&G can use the freed capital to write new annuities with higher surrender charges and longer surrender periods, Young said.

4. The cash value inside newer annuities sold and purchased could be locked up more tightly.

Many customers are moving cash from older, unwanted annuities into newer annuities.

“The stuff we’re writing right now might prove to be some of the stickiest assets we’ve ever written,” Young said. “Because if rates do, in fact, move down from here, it’s going to be very hard to move those contracts prematurely.”

5. F&G Annuities may benefit when interest rate changes push clients to overhaul their portfolios.

When clients change gears, “it benefits our own distribution, because some of the investments we’ve made have been in annuity-oriented [independent marketing organizations], and they’re just crushing it in this environment,” Blunt said. “Not only in terms of new sales, but obviously in terms of smart replacement sales.”

Chris Blunt. Credit: F&G