Like in “a tale of two cities,” at any point in time, the world would seem to be different for the haves and have nots. The same is true for annuity writers. As Charles Dickens would have put it, for annuity writers, 2023 “was the best of times, (it) was the worst of times, …, it was the season of darkness, it was the season of light.”
As we look forward into 2024, I would say It will be “the spring of hope,” it will also be “the winter of despair.” It will be “the spring of hope” for the have nots, and “the winter of despair” for (many of*) the haves.
For the haves, or those insurers with large book of legacy fixed annuity policies written in the past decade, 2023 has been a season of darkness. The low yield environment before 2022 forced most annuity writers to go long in duration and go down in quality to increase the asset yield by 10 to 20 bps. Getting into MBS and other negatively convexed securities and complex, less liquid structures were other ways to enhance yield. The rise in yield over the past 20 months (about 1 and a half years) has caused the MBS to extend in duration and severely underperformed the liabilities the assets were supposed to support. It has also put a lot of stress on securities with complex, less liquid structures. As surrender charges slide down as the year turns from 2023 to 2024, and the difference between the new and existing crediting rates staying at elevated levels, I expect a huge wave of lapses taking place in the first half of 2024 of these policies with no or low surrender charges.
For the have nots, 2024 will be an opportune time to get into the annuity business. The investment yield is incredibly attractive for new annuity policies. Not only there will be a lot of people with newly surrendered policies and they need to find a home for the money in tax deferred vehicles, but there will also be a lot of new investors who are attracted to the annuity market due to the much higher annuity crediting rates than what they could have gotten over the past decade.
For the have nots with a clean balance sheet and a good surplus situation, 2024 will be the spring of hope. Get your product design, investment and crediting rate strategies ready for the new year!
And do not forget the opportunity from the PRTs…
*For those with well-designed all-season annuity products and ALM strategies, 2023 is just another year except with low sales volume. 2024 will be a much better year than 2023.
