Prudential enters FIA market with a choice of underlyings

Prudential Annuities, the domestic annuity business of Prudential Financial, entered the fixed indexed annuity (FIA) market in the US earlier this month with its first ever structured annuity, the PruSecure Fixed Indexed Annuity.

SRP spoke to Dianne Bogoian (pictured), head of product for Prudential Annuities, about long-term 'protection solutions' with exposure to stock markets, and how fixed indexed annuities make part of Prudential's commitment to 'expanding options for individuals seeking a measure of security and growth potential for their portfolio'.

The PruSecure Fixed Indexed Annuity reinforces is a single-premium, long-term protection solution that earns interest based on stock market performance and/or a fixed rate, with zero exposure to market downturns, according to Bogoian.

"The decision to enter the fixed indexed annuities (FIA) space is a reflection of what consumers are looking for," said Bogoian. "Clearly there is consumer demand for principal protection solutions and there is a sizeable market for indexed annuities. In addition, we have been looking internally at the options to supplement Prudential's existing offering and we concluded that these products were providing an answer to needs in the market."

Bogoian noted that investors fearful of down-market loss now hold US$12tr in cash, certificates of deposit (CD) and money market positions that currently offer little growth opportunity, according to the JPMorgan Guide to the Markets (30/09/2017).

"Many investors remember the 2008 financial crisis and continue to be concerned about market risk," said Bogoian, pointing that investors can mix and match indexes and crediting terms with the new product. "Fixed-indexed annuities like PruSecure offer market downside protection plus upside opportunity - you don't have to choose one or the other."

The PruSecure Fixed Indexed Annuity offers financial advisors with a choice of four options benchmarked to the performance of the S&P 500, MSCI EAFE, Dow Jones US Real Estate Index and Bloomberg Commodity Index. In addition to one-year index term options, the new FIA offers three- and five-year index term options, 'generally offering more upside protection'. Initial cap rates provide up to a 32% return based on the chosen index, credit term, and surrender period.

Prudential's unique book of business allows the company to balance mortality and longevity risk while offering expanded protection solutions to its customers, said Bogoian. "Prudential has been meeting financial challenges for more than 140 years and built our reputation by being steadfastly committed to innovation, risk management and sustaining financial strength," she said, adding that the aim with its first FIA was to develop a solution with principal protection and the opportunity for growth based on the performance of different indices up to a "cap rate".

"The key element of the new FIA is that it allows investors and advisors to pick among various indexes and allocate to them according to their needs," said Bogoian. "In addition, the product offers different time periods of duration (one-, three- and five-year) depending on the index. This set up provides different investment options and a more personalised approach to tailor the product to consumer needs."

Prudential Annuities made a deliberate choice not to include a volatility index on its first FIA, and this decision was based on consumer research around simplicity and transparency, according to Bogoian.

"Often those indexes can be hard to track and it might be difficult for the client to determine how the investment is performing so we decided to offer well-known indexes with long track records -all the indexes offered in the PruSecure FIA have a minimum 20 years track record," said Bogoian. "This is our first FIA and we plan to expand the range and iterate going forward and we will consider any index overtime as long as it enhances the value of the product. We are open to adding further features and strategies to this range in the future."

Prudential is seeking to leverage its position and reach in the US retirement solutions market to grow its footprint and coverage in the FIA market.

"We think it is important to give options to consumers (...) around market exposure and (...) term horizons, and we think that giving the end investor the chance to personalise and tailor the solution to meet their needs is an added value and something different from other products out there," said Bogoian, adding that Prudential is "a recognised brand in the US market and by expanding our product offering we make ourselves relevant in this space with the commitment to deliver solutions that consumers and advisors are looking for".

"We will continue to look for product enhancement and expand the range accordingly," said Bogoian. "We have plans to support this new range of fixed indexed annuities and will continue expanding our existing product mix with more simple and personalised solutions for our clients."

Uncertainty around the Department of Labour (DoL) Fiduciary rules has had an impact on a whole sub-set of intermediary firms which slowed down sales over the past year but this was more a distribution issue than a product issue but the number of FIAs launched into the market actually increased in 2017.

"If you look at the size of the FIA market today it is pretty significant and has the scope to grow," said Bogoian. "We were not present in this segment of the market and FIAs became a recurrent theme over the last couple of years during conversations with clients and advisors," said Bogoian. "Our decision was not based on regulation or around considerations of a growing/falling market. We think this is a very important market and we wanted to participate, and it also gave us the opportunity to complement and expand our product offering."

The four indices being offered by the new PruSecure FIA are widely featured in the US structured products market with the S&P 500 dominating the market in terms of issuance (1,720 products) and sales volumes (US$8.1bn) in 2017. There are currently over 10,000 live products in the US market linked to the S&P 500 index, and over 600 featuring the MSCI EAFE index. The Bloomberg Commodity Index appears in 44 live products while the DJ US Real Estate index remains marginal appearing in just 14 live products, according to SRP.

Demand for new underlyings is increasing as the FIA market grows, SRP Indexed Insurance Forum

Lincoln adds to indexed annuities, FIA market up by 15% in second quarter

Indexed annuities to fall further until DoL rules are clarified, Limra