Annuities Can Help Clients Survive a Strong Economy: Executive

Life insurers are making the case that a non-variable annuity can also help clients cope with aches and pains caused by a surprisingly good economy.

The Bureau of Labor Statistics startled investors today reported that hiring has been stronger than expected, the unemployment rate has fallen to 4.1% and hourly earnings are 4% higher than they were a year ago.

The Federal Reserve Board was preparing to lower interest rates fairly quickly. Now, its plans could change.

The S&P 500 was up about 0.5% in the early afternoon, but market analysts warned that more-expensive-than-expected credit could hold down stock prices.

No matter what the Fed and interest rates do, annuities “offer a safe haven for assets,” according to David Byrnes, chief distribution officer of Security Benefit.

A fixed annuity can help shield a client against the effects of a terrible economy, and it can also protect a client against the possibility of stable or slowly drifting interest rates hurting stock prices, Byrnes said.

What it means: If clients can keep assets in an annuity and the annuity performs as expected, the contract can insulate the clients against the effects of good news as well as the effects of bad news.

The backdrop: Federal Reserve Board officials believe that increasing interest rates helps control inflation.

The Fed began increasing rates sharply two years ago to cool prices.

Those increased have pushed rates on typical multi-year guaranteed annuities, or MYGA contracts, to more than 4% today, from less than 2% in 2021.

The Fed recently moved toward declaring victory in the fight against inflation. It’s started to push interest rates lower, to avoid accidentally freezing the housing market and the job market.

Falling interest rates can help increase stock prices, by lowering the cost of capital that businesses can use to grow and investors can use to invest.

Fall rates can also increase the prices of bonds already in portfolios, and eventually cut life insurance and annuity issuers’ yields on new money invested in new bonds. But falling interest rates could also help some assets and life and annuity issuers already hold, such as investments tied to the value of office buildings.

The case for annuities in uncertain times: Byrnes made the case that the current uncertainty makes this an especially good time to buy a product, like a multi-year guaranteed annuity, that protects principal and provides at least a modest guaranteed return

If rates end up going down, “locking in a MYGA rate now is a smart strategy that offers stability, predictability and the potential for more favorable interest accumulation,” he said.

If rates do go up, buying a MYGA and holding to the end of the rate guarantee period is a way to get an asset that’s safer even than a typical bond, Byrnes said.

Bonds “can fall in a price in a rising rate environment,” Byrnes said.

Still selling: One question has been whether annuity issuers would get nervous about absorbing additional annuity guarantees or run out of capital they can use to support new annuities.

Security Benefit showed its comfort with annuity market last week by adding a non-variable indexed annuity with a 20% premium bonus and a rider that can let a client take out up to 30% of the premiums without charges or premiums.

In recent weeks, some other issuers have also shown they still like selling annuities:

American National created a custom index for its Strategy Index 10 annuity.

Nassau Financial launched the Nassau Bonus Annuity Plus contract, a non-variable indexed annuity that offers a premium bonus at the time a contract is purchased.

The Savings Bank Mutual Life Insurance Company of Massachusetts added the Market Crest MYGA contract.

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