Insurers Embrace New Opportunities for Annuity Innovation

December 10, 2020 — Boston

Registered index-linked annuities (RILAs) offer a bright spot for sales growth; Cerulli projects RILA sales growth will continue to outpace other annuity products over the next five years

Registered index-linked annuities (RILAs) are poised to exhibit robust growth as additional large, reputable insurers enter the space with innovative concepts. RILAs have garnered steady growth in recent years to reach a quarterly record of nearly $5 billion in 4Q 2019, according to Cerulli’s latest report, U.S. Annuity Markets 2020: A Decade of Adaptation.

“RILAs offer the client participation in the returns of mainstream market indices, while protecting the client on the downside, reminiscent of a guaranteed living benefit (GLB), though not as risky for the issuer,” according to Donnie Ethier, director of Cerulli’s Wealth Management practice. As broker/dealer (B/D) home offices and their advisors continue to evaluate and embrace today’s supply of RILAs, Cerulli expects more insurers to enter the space. “Several insurers are currently developing RILAs and plan to deemphasize their traditional variable annuities that are more difficult to hedge,” he adds.

Cerulli anticipates that RILAs will attract sales and marketshare away from competing annuity designs. RILA sales were $2.2 billion in 2Q 2018, then achieved a seven-quarter streak where their sales were either the same or better sequentially. The report cites key product characteristics and educational initiatives undertaken to educate B/Ds and advisors as key growth enablers. “There is more to the RILA story than simply the product’s inherent characteristics—that is, the promise of some upside potential, linked to market index gains, coupled with a limited degree of downside protection,” remarks Ethier. “Another key reason for RILA traction is how well insurers have educated distributors and advisors on the product’s advantages,” he adds.

With rapid advancement in RILA product development as well as growing acceptance among B/D home offices and advisors, Cerulli projects that sales will continue to increase faster than any competing annuity type through 2025.

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These findings and more are from The Cerulli Report—U.S. Annuity Markets 2020: A Decade of Adaptation.

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