By Warren S. Hersch | May 18, 2020 | Life Annuity Specialist

Low interest rates are spurring creativity among issuers of fixed-indexed annuities.

They have to adjust to long-term rates of less than 1%, which have depressed the caps, or limits, on how much their products can earn.

In the wake of the challenge, market observers expect issuers to introduce products that have features mirroring those of hot-selling structured annuities. Other trends might include new and expanded distribution agreements with third parties that cater to registered investments advisors.

Borrowing Attractive Features

Corey Walther, president of Allianz Life Financial Services, says a key thrust of product developments underway at the Minneapolis-based insurer ― the incorporating of features available in buffered or structured annuities into fixed-indexed products ― reflects a broader trend afoot industrywide. He cites as examples indexes that credit interest over a multi-year period, such as a three-year term, and that manage equity market volatility.

Managed volatility indexes, which can adjust different assets to reach a targeted level of market volatility ― a potential benefit being more dependable and consistent investment at lower cost ― have performed well during the market turmoil of the last six to eight weeks, Walther notes.

He also highlights features that let policyholders lock in index gains during a contract term, such as after the seventh month of a one-year crediting period. Performance locks, Walther says, give clients and advisors “much more flexibility than a lot of these products have had in the past to customize levels of protection.”

Not all such features are new to the fixed-indexed segment. In March 2018, Allianz Life itself, for example, introduced a volatility-controlled BlackRock iBLD Claria Index with its Accumulation Advantage indexed annuity.

“Whatever can be mirrored will be mirrored,” says Tamiko Toland, head of annuity research at Cannex Financial Exchanges. Still, she notes that won’t be easy. Carriers enjoy more flexibility in designing buffered products because, unlike fixed-indexed annuities, losses can be passed onto policyholders.

Chuck DiVencenzo, CEO of the National Association of Fixed Annuities, cautions against expecting too much borrowing from the buffered segment because of the different types of customers served: individuals with varying financial objectives and different levels of risk tolerance for market losses.