The asset manager is seeking to make indexed annuities look and feel like the broader US retail wealth market.

Blackrock has seen the assets of indexed annuities linked to its investment strategies exceed US$10 billion over the last 12 months. The volume has mainly been driven by fixed index annuities (FIAs) with the remainder coming mostly from registered index-linked annuities (Rilas).

“It’s been an incredible time for indexed annuities,” Igor Zamkovsky (pictured), head of indexed annuities, retirement insurance at BlackRock. “Retirees need guaranteed income very much in view of last year’s geopolitical uncertainty and market volatility.”

We've seen nice growth of our business where we lean into our custom indices that are all built with iShares ETFs, ranging from two to 20 - Igor Zamkovsky

Within the retirement insurance segment, the US asset manager forges ahead in the annuity space across variable and indexed products. For the latter, benchmarks for crediting strategies cater to FIAs, Rilas as well as index universal life (IUL) through both custom index solutions and BlackRock’s flagship iShares exchange-traded funds (ETFs).

For the first nine months of 2023, the combined sales of FIAs and Rilas reached US$105 billion following another quarter of high activity for Rilas.

“The tailwinds on both demand and supply sides are very strong,” said Zamkovsky. “We've seen nice growth of our business where we lean into our custom indices that are all built with iShares ETFs, ranging from two to 20.”

BlackRock currently works with eight insurance carriers for custom indices and a similar amount for single ticker iShares ETFs.

There’s been a noticeable shift of clients’ demand towards US-centred equity from global muti-assets in terms of custom indices. “There’s certainly a lot of interest in indices with higher volatility targets given the interest rate hikes,” said Zamkovsky.

Meanwhile, he noted that simplicity is a significant investing trend as the FIAs and Rilas linked to the S&P 500 deliver robust inflows in the past year.  The headline index rallied over 24% in 2023 led by tech stocks.

For underlying ETFs, Zamkovsky highlighted the iShares MSCI Emerging Markets ETF (EEM), iShares U.S. Real Estate ETF (IYR), iShares MSCI EAFE ETF (EFA), iShares U.S. Technology ETF (IYW), iShares Russell 2000 ETF (IWM).

Brand awareness, hedgeability, liquidity and transparency are among the top considerations for annuity carriers when they choose underlying assets.

“One of our value propositions is to make indexed annuities increasingly look and feel like the broader US retail wealth market,” said Zamkovsky.

New blood

The tailwinds for FIAs and Rilas are boosted by a continuing heavy capital stream brought by private equity firms to the insurance space, which “has been a strong strategic fit to their business model”, said Zamkovsky.

Accordingly, there’re a number of offerings in the market that have solid policyholder value, such as attractive cap rates and high guaranteed lifetime income levels.

“There’s much room for more investment strategies across index providers and asset managers in the FIA segment,” added Zamkovsky.

From mid-May 2023 to mid-November 2023, there were 318 announced insurance transactions with over US$11.2 billion in announced deal value, compared to 298 announced insurance transactions and US$7.7 billion in deal value in the previous six-month period, according to Pwc’s report ‘Insurance: US Deals 2024 outlook.’

One of the mega deals is Brookfield Reinsurance’s US$4.3 billion acquisition of American Equity Investment Life Holding Co, which was unveiled in July 2023. The  insurance dealmaking is expected to remain active heading into 2024, stated the report.

The insurance holding company, owned by Canadian private equity firm Brookfield, entered the US insurance market after completing its US$5.1 billion acquisition of American National Group in May 2022.

American National Insurance Co is also gearing up to launch a FIA tracking a custom multi-asset index developed by HSBC in January, as SRP reported.

At BlackRock, Zamkovsky looks forward to “seeing more interest in how investments and annuity products can together drive the best client outcomes within holistic portfolios” as investors increasingly use FIAs as bond alternatives and buy Rilas to de-risk equity portfolios while maintaining a large amount of upside in the market.

“I think we’ll be in a regime that there’s going to be a fair amount of volatility and uncertainty in 2024,” said Zamkovsky.

Investor education will continue to be a focus for the team who’s working on research reports about demystification of certain product features, such as volatility control and excess return.

“I expect interest rates to continue to stay in a slightly elevated range, which will bode well for annuity products,” concluded Zamkovsky.