NAFA President Kim O’Brien:
“These are unprecedented times in America. The number of retirees is increasing exponentially year after year and seniors are living longer. There’s a continued volatile and soft stock market and a sustained low-interest environment. Despite these economic and demographic realities, in addition to other challenges, the outlook for the annuity marketplace is shining with unlimited opportunities.
As a participant in this industry for almost three decades, I have seen many boom and bust markets. Periods of high interest and periods of low interest. New regulations and legislation. However, I have never witnessed such a shackled economy or regulatory and litigious fever. Nonetheless, our industry has always met challenges with innovation and creativity. The fixed indexed annuity, for example, was the answer to a sustained soft bond market. Meeting challenges with innovation is the story of our industry and a story in which we can all take pride.”
Read More at Annuity Outlook Magazine
Advantage Compendium’s Jack Marrion:
The average annualized index annuity returns collected by Advantage Compendium for the period 2007 to 2012 averaged 3.27%. Whether this was good or bad depended on where else you might have been. Compared to rolling over one-year certificates of deposit, owning an index fund or owning the average stock fund, the average index annuity return looked pretty good. However, compared to a five-year CD you might have purchased back in 2007, the index annuity return was maybe a percent short, and many bonds and bond funds also beat the average index annuity for the period.
As five-year periods go, the most recent one had the lowest returns so far recorded, but it also shows the attractiveness of the concept. This last period included the mortgage bond crisis, the crash of ’08, a severe recession and a sluggish recovery. The S&P 500 index itself finished lower than where it began, but in spite of all this, the index annuities produced returns that ranged from 1.2% to 5.5% a year.
The competitive environment for index annuities over the next five years is more positive mainly, because alternatives are more negative. The reality is low interest rates will keep caps and overall index participation low for most of the period. So, which crediting method is best going forward?