Insurance companies are looking to non-traditional sources of growth amid growing financial pressures, according to a study by Cerulli Associates, and many are turning to the defined benefit pension market.
The study, “Annuities and Insurance 2013: Balancing Shrinking Supply and Increasing Demand for Guarantees,” examined the variable annuity, insurance and insurance sub-advisory marketplaces, focusing on distribution, product development and asset management.
It found that many insurers are scrambling to diversify the types of products they offer, and that defined benefit plans are turning into a major boon for the industry.
Opportunities, Cerulli said, are emerging for insurers to acquire domestic plan assets through either a buy-in or a buyout, which has happened a lot in the U.K. market.
“If the U.K. market is an indicator of things to come, insurers may have the potential to capture immense domestic pension assets, whether hedging a portion of the liabilities via a buy-in, fully acquiring the assets through a buyout, or continuing to capture retail and rollover assets,” said Donnie Ethier, senior analyst at Cerulli. “Despite de-risking measures, pensions still control $6.7 trillion, although public defined benefit plans still claim nearly two-thirds (63%) of the total assets.”
The study also found that investors were asking their financial advisors for more information on both annuities and Roth IRAs, which is promising for the industry, but that 28 percent of all households still say they don’t know anything about annuities.
Cerulli recommends that insurers consider offering other types of annuities, like deferred income annuities, to help address pre-retiree needs.
Cerulli believes that the overall market has a good way to grow from its current $124 billion. It predicts it can grow to a $142 billion market, or even higher if it continues to diversify its annuity offerings.