Private Equity Firms and the Annuity Market
A recent trend in the Index Annuity marketplace has been Private Equity firms buying up insurance carriers. The biggest of these acquisitions was Athene’s purchase of Aviva USA, the #2 seller of FIAs over the last decade. Now the first primarily Variable Annuity carrier has been bought up with Guggenheim’s recent acquisition of Sun Life. There has been a lot of talk about what this means to the Annuity industry. Here are some articles elaborating of this trend:
As you can see in these articles the Private Equity firms are more investment focused and aggressive with their pricing.
However, one question that we get often at Annuity Think Tank: Are these products and carriers aggressive pricing a good deal for agents and clients?
There are two schools of thought. First theory is at today’s low cap and interest rate environment, these are the best priced Upside potential, Income guarantees, and Death/LTC/Terminal Illness Benefits. This makes sense, when you consider these firms are more aggressive with the internal pricing of their products. However, the counter-point to this is these companies are too aggressive to support these rates in today’s market. The cynics think that stock market or interest rate volatility could stress these firms aggressive strategy. Some go as far as saying it could cause an insurer to fail.
The truth is probably somewhere in the middle. But as with anything, there are trade-offs. For a client or an advisor, it’s a return vs risk potential discussion. These Private Equity firms are currently offering stronger returns than you can find from the insurance company. However, they are doing so by investing their portfolios more aggressively (albeit with a track record of successfully doing so). So your decision is which strategy is for you, lower yet safer return or better return yet with more uncertainty? Possibly, it’s a combination of the two. One solution, diversify your safe money. If this is your retirement nest egg, it may not be wise to put 100% in a riskier strategy. However, by the same notion, you may not be able to retire at your goal by putting 100% in a lower performer. For an advisor who can assist you in developing a personalized and diversified retirement plan, please click on “Find an Advisor” below.