RILA annuities are very popular – and complex – InsuranceNewsNet


The fastest growing investment vehicle for retirees can also be the most complicated, and attempts to try to simplify obscure features of the relatively new product can be daunting.

Yet that hasn’t dampened the popularity of annuities, called RILAs, or registered indexed annuities – formerly known as buffered annuities or structured annuities. RILA sales broke records in the fourth quarter of 2021 and for the year. RILA’s fourth-quarter sales increased 22% to $10.3 billion. In 2021, RILA sales totaled $38.7 billion, up 61% from 2020. Record growth rates slowed slightly in the first quarter of this year, but the industry still expects what a big increase in RILA in 2022.

Unexpected growth for some

Those numbers somewhat surprised even retirement industry sales veterans on Wednesday at the 2022 Retirement Industry Conference in Boston, hosted by the Secure Retirement Institute and the Society of Actuaries.

Marie-Laure Chandumont, managing director of Barclay’s life and annuities team, quizzed participants on the data in a late afternoon session, and while she didn’t appear to be tallying the scores, the most of the answers were short. Nonetheless, Chandumont casually reviewed the pricing and investment strategies employed by the industry to drive RILA sales and hedge their risks and found near uniformity in how investment firms structure and hedge their bets.

“Everyone hedges statically,” she said, explaining that a static hedge is a hedge that doesn’t need to be rebalanced for market volatility. This contrasts with dynamic hedging which requires constant rebalancing as market conditions change. Chandumont produced a chart showing that most major investment houses go long and short at nearly identical amounts in order to manage their hedges. For example, she showed Ameriprise with $1.1 billion in long investments and a short position of $1.2 billion. Equitable is $12 billion long and $12 billion short, and so on.

“So if you go for a short sale, you buy the same amount of short sales and then you sell the same amount of short sales, which means you’re hedging one for one,” she said. declared.

Static coverage is key

Static hedging is partly key to how RILA sellers can promise growth beyond a simple fixed rate of return while providing guaranteed protection against losses due to market downturns. It is a hybrid of popular fixed indexed annuities that link performance to major market indices. But RILAs offer a wide selection of financial options to deliver specific investment growth with better protection. With an RILA, investors can set the maximum loss they are willing to tolerate, unlike traditional index annuities. Their popularity has exploded during the tumultuous market times of the pandemic.

Although not entirely new – they have been around for nearly a decade – RILAs are the hottest investment vehicle for retirees and those approaching retirement and have recently come under more notice from regulators. , said David Elliott, director of Oliver Wyman actuarial consulting. But, he explained, the regulator’s interest is primarily centered on developing rules and approved filing forms and materials to help investors better understand the product.

“There’s a lot of regulatory attention on everyone right now,” Elliot said. “And I think that will continue to grow. There are certainly state regulators that look at these things very, very closely when you get the product approved. There will need to be greater disclosure and explanation of the principles. You can’t just make them up and there shouldn’t be any examples of different people getting different responses about the product. »

These features could be welcome for buyers and sellers. Wednesday’s RILA session was advertised as a way to help sellers drive better pricing strategies, but was so immersed in numbers, data and competition highlights in the 45-minute session that the overall goal or the takeaways might have been lost for some participants. Yet with the current downward market trend, no one has seen a slowdown in RILA sales.

Doug Bailey is a freelance journalist and writer who lives outside of Boston. He can be reached at [email protected].

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Sharon D. Cole