The fixed indexed annuities market has seen plenty of growth in recent years and even more is in store, according to Oliver Wyman.
From 2007 to 2013, FIA annual sales growth averaged nearly 8 percent; their share of the overall annuity market jumped from 9.7 percent 17 percent, the management consulting firm said in a report.
Going forward, M&A activity is likely to continue, with a growing number of players and increasing competition, Guillaume Briere-Giroux, principal and Hartford Office Leader of the Actuarial Practice of Oliver Wyman, wrote in a report.
The market is also well positioned for a potential rise in rates relative to the traditional fixed annuity market, and further expansion in banks and broker/dealers is likely as long as the yield curve remains steep, he said.
Briere-Giroux believes that while carriers such as AXA, MetLife and Allianz Life have launched variable annuity/FIA hybrids, additional carriers will offer such products, which he says are a new and innovative way to attract VA assets, fill the “spectrum” of available products and balance the risk profile of existing VA blocks.
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In addition, several carriers have recently announced their intention to redomicile and several more will do so, Briere-Giroux predicts. Fidelity and Guaranty Life, for example, have announced they are relocating to Iowa, while EquiTrust is relocating from Iowa to Illinois. He said the key factors behind these decisions include the regulatory environment, operating costs and human resources, which could motivate other carriers to consider their own options.
Statutory reserving will continue to be a key issue, while operational excellence will become more important as the FIA market matures, according to Briere-Giroux.
He suggested as well that carriers will refine their view on policyholder behavior as experience emerges, with a growing number likely to apply advanced analytical techniques to assumption setting and customer retention.
Economic and market forces, including stronger corporate balance sheets and lower interest rates, could also incentivize greater investment risk, said Briere-Giroux.
Finally, he expects carriers to strengthen the risk management of riders, with many becoming more deliberate about how they embed guaranteed lifetime withdrawal benefits in their application lifecycle management, how they approach hedging decisions and how they manage statutory accounting volatility.
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