Earlier this year, we hosted our second innovation in retirement event called Retiretech 2.0. Scott Hawkins, Managing Director and Head of insurance research at Conning delivered a keynote address on macro trends driving the annuity market today. We play his presentation on this show today.

Learn more about Nassau’s Retiretech Forum 2.0: https://imagine.nfg.com/retiretech-forum-2-0/

 Listen

 Watch

Receive Updates

Show Sponsors

Episode Transcript

The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

Transcript:

00;00;00;00 – 00;00;25;12
Speaker 1
Welcome to that annuity show, the podcast that will make you an expert in explaining annuities to your clients. Give us 30 minutes each week and we’ll shave hours from your client presentations. Now here’s your host, Paul Tyler.

00;00;25;15 – 00;00;31;28
Speaker 2
Hi, this is Paul Tyler and welcome to another episode of that annuity show. Ramsey, how are you today?

00;00;31;29 – 00;00;34;23
Speaker 3
Fantastic. Happy Friday.

00;00;34;25 – 00;01;03;28
Speaker 2
Good. Well, you can say that again as it’s been a packed few months. We just I was just at the insurer Tech Hartford Conference on Tuesday and talked to a lot of our friends, a lot of overlap. In fact, Scott Hawkins from Corning was there. I had a chance to sit down and talk to him. And, you know, we actually had him at our retired tech event.

00;01;03;28 – 00;01;05;27
Speaker 2
Ramsey I thought he was a great speaker.

00;01;06;00 – 00;01;32;09
Speaker 3
Yeah, no, he provided a really great industry context, right? There’s a lot of there’s a lot of movement in the industry. There is the industry is growing. We’re seeing, as he put it, changes and names at the top. And as you and I discussed before the call, there’s there’s obviously, you know, an increase of concentration as have a lot of the businesses happening at the top of the league tables.

00;01;32;14 – 00;01;35;19
Speaker 3
But the names of change and that’s pretty significant.

00;01;35;21 – 00;02;10;03
Speaker 2
Yes. So anyway, we had a great conference. We’re going to be sort of slowly rolling content out on this podcast, content that we think will resonate with agents, advisors, people who work for carriers. Scott Clearly has a message that will deliver something for just about everybody who listens to the show. And as you said, there’s a lot of change and technology is right at the heart of a lot of the change that we’re seeing in the industry today.

00;02;10;06 – 00;02;30;20
Speaker 2
And, you know, Scott does an interesting teardown of the financials to actually quantitative. We show how the technology is spending. And I think also from a very unique perspective, how the the employee base is changing as well. So I don’t know any other thoughts. Ramsay, before we run the recording.

00;02;30;21 – 00;02;44;18
Speaker 3
Well, you know, on that last point, I thought it was very interesting that that he had commented that there will be an expanding role for for knowledge workers in our in our industry. I think that’s great in a world which is threatening knowledge workers.

00;02;44;20 – 00;03;15;13
Speaker 2
So it’s it’s going to take our all our jobs away. So with that, we’ll roll the tape and listen, give us feedback and we’ll look for more content like this in the coming weeks. Thanks. Thank you. Good morning, everyone. Morning. We do it again. Good morning, everyone. There’s the energy we need, Right, Anthony? I’m Tom Buckingham. I’m the chief growth officer at Nassau Financial Group, and I’m responsible for our retail annuity and Medicare supplement businesses.

00;03;15;15 – 00;03;34;15
Speaker 2
You’ll hear from some of my counterparts today as we transition between between sessions. I want to thank Paul and Laura for setting this up and for Anthony and Mary and anyone else who’s helping out with this. And Shiva in the Capgemini team for hosting us. This is a fantastic space. I think Paul and Shiva did a great job setting up the day.

00;03;34;16 – 00;04;01;04
Speaker 2
Why the focus on retire tax? Why is it important? And looking forward to hearing dialog today around that and how we can all help solve some of the problems that were outlined? I want to welcome Scott Hawkins from Corning. Scott is a managing director and head of Insurance Research at CONNING in Hartford. He’s been there for over 15 years and he’s been a great partner in the Hartford insurance ecosystem.

00;04;01;04 – 00;04;18;18
Speaker 2
I know we have several folks down from Hartford, but without further ado, I want to I have the pleasure today of introducing him and bring him up. And he’s going to talk about the state of the annuity industry, which I think ties in. Well with the interest we’ve had so far. So let’s give Scott a warm welcome.

00;04;18;20 – 00;04;53;06
Speaker 4
Thanks, Tom. Welcome. Good morning, everyone. I also want to extend my thanks to Paul and Laura and everyone at the Nassau team for inviting me here today to speak with you. As I said, you know, I am Scott Harkins. I’m with Connie. And make sure I get the right way to go. You it again down here? Yeah, I’m just trying to.

00;04;53;07 – 00;05;15;11
Speaker 4
There we go. We’re speaking to you today about the state of the annuity industry. Now, I know that I am the only person standing between you and lunch and networking, but I do want to spend about 20 minutes talking about this topic. Leave a little room for Q&A. I want to start by asking you a question. Why should you really care about the state of the annuity industry?

00;05;15;14 – 00;05;37;08
Speaker 4
Well, if you’re an insurer, this understands the competitive landscape that you’re in business in who you’re competing against, how that’s changing the landscape. If you’re a consumer or an advisor. Annuities will likely be one of the key product solutions for guaranteeing retirement income that you will have in your tools and understanding what’s going on in the annuity industry.

00;05;37;14 – 00;05;58;25
Speaker 4
It’s going to make you a better consumer and a better advisor. And if you’re a retired tech, understanding what’s going on in the annuity industry will help you better understand the needs and wants of the customers you’re trying to sell product to. Well, let me start first with a quick commercial. Who’s counting? How many of you know who Corning is?

00;05;58;25 – 00;06;20;05
Speaker 4
Raise your hands up. Wow. That’s really impressive. We are a global asset manager. We focus on managing assets for insurance companies like PNC and Health. We have four very large annuity clients that we manage assets for. One of the ways we distinguish ourselves in the marketplace is with our insurance research. That’s the group I head up. It’s about 20 individuals.

00;06;20;05 – 00;06;42;05
Speaker 4
We provide top level strategic research on the key issues and themes that are affecting profitability. Our customers and consumers are CEOs, CIOs, CFOs. But let me start with what I’m really hearing today. I want to touch base on the five themes we see in insurance research that’s affecting the annuity industry in 2023. Starting at the top is the economy.

00;06;42;05 – 00;07;13;06
Speaker 4
It’s always the economy going clockwise. I’ll touch base on competition. What’s going on in the competition within the annuity industry. And there the key words are consolidation. Consolidate and consolidation. Then I’m going to talk about the restructuring of the annuity balance sheets, the emergence of new players and the attention that that’s drawing and the opportunities that’s creating. I’ll then touch base on the secure Acts one and two, which is, we think, going to completely transform the annuity industry over the coming decade.

00;07;13;08 – 00;07;40;25
Speaker 4
And finally, I want to touch base on technology, an area that has helped driving innovation and efficiency across the insurance industry. With the annuity industry being no different, let’s start with the economy. What you’re seeing here is the impact of inflation and the Fed’s efforts to try and combat that. You’re looking at the ten year Treasury yield. That’s the spiky little line with the rate increases up through the end of the year.

00;07;41;00 – 00;08;06;08
Speaker 4
I don’t have the one that just occurred on that. That’s likely to continue. So why is the interest rate world and interest rates such an important thing? And why isn’t this increase good for annuities? Well, annuities are essentially spread products, especially on the fixed side. Those general account assets earn a return. Part of that return gets passed on to the contract holder in the form of a crediting rate.

00;08;06;10 – 00;08;27;11
Speaker 4
Some of those crediting rates, though, have been under pressure as interest rates have decreased. So there’s been a squeeze on the spread margins enjoyed by a lot of annuity insurers. That’s put pressure on profitability. Rising interest rates are a good thing for portfolio yields and ultimately for the crediting rates that are being paid to annuity clients. Let me give you an example of how that looks.

00;08;27;14 – 00;08;55;17
Speaker 4
What you’re looking at here is something we’ve been doing accounting research since 2010. The columns that you’re looking at or the actual book yields, that’s net investment income over average general account assets for the insurance industry, life insurance industry from 2010 through 2021. 2022. Data is just coming in, as you see, that has been going down from about 4.7% to somewhere around 3.8% over this ten year period.

00;08;55;20 – 00;09;20;18
Speaker 4
That’s the squeeze on profitability. Now, you’ll see the two lines out there, something we again have been doing since 2010 is trying to forecast where portfolio yields might go. The actuaries on our team can sort of project the assets rolling off what new sales would be coming in, what interest rates might do. The orange line was the early baseline scenario that we saw in the start of 2020 when we did our forecast.

00;09;20;21 – 00;09;50;28
Speaker 4
Remember the interest rate environment in still forecasting to go down? We continue to see a decrease in portfolio yields. But what actually happened last year, those interest rates went up and last year we reforecast and you see that the blue line. Finally, portfolio yields will start to increase and improve and that’s really important for the profitability of the insurance industry, but it also affects product sales because what’s going on in the economy are interest rates going up with crediting rates.

00;09;50;29 – 00;10;16;10
Speaker 4
Is the equity market volatile? Is going up. Those will determine the types of products that consumers generally like to buy. What you’re looking at here is the direct statutory premium by product for Vas in the dark blue, indexed in the medium blue and fixed annuities in the lighter blue. And you see the Vas have been bouncing along. They were extremely strong in 2021 because that distributors were able to go back to business.

00;10;16;12 – 00;10;41;20
Speaker 4
People could emerge from COVID. The economy was recovering. The stock market was relatively strong last year, not so much glimmer reports that 2022 VA sales were off about 20%. But that, of course, follows a 16% increase the year before. Now, when you look at that decrease, that’s really partially driven by the traditional variable annuities. It does not include the increase.

00;10;41;20 – 00;11;08;03
Speaker 4
It was about 6% last year for real estate sales. They are technically categorized as a VA and on a statutory filing, that’s where you will find them. What you will see though, is the huge spike in fixed rates in fixed annuity sales, crediting rates really drove that. And I’ll give you an example of that annuity rate watch dot com January 2020 two’s average crediting rate for a five year mega was 1.94%.

00;11;08;05 – 00;11;34;15
Speaker 4
In December they reported it was 4.34%. When you have that huge increase in crediting rates, you’re going to attract people who are saying, I can go in there, get the tax deferral for the fixed annuity, I get the option for a news organization when I do retire, I’m getting a pretty good crediting rate on that. What you see on the right hand side is our forecast at conning, because we forecast these for three years of what we think sales will continue to do.

00;11;34;17 – 00;12;01;03
Speaker 4
We think VA sales will recover partially driven by our relays, but also the fact that there will be continued interest. I’ll be lower for traditional Vas if interest rates continue to be strong. Fixed annuities will be popular and indexed Annuities are still popular, but we think all relays will take some of their thunder. So I’ll switch to the second area, which is the landscape that insurers are competing in.

00;12;01;05 – 00;12;31;14
Speaker 4
As I said, it’s one of concentration and consolidation. What you’re looking at here on the left hand side is the direct premium market share for the individual annuity line for 2017 through 2021. 2020 to date is just coming out, but it doesn’t really change the picture. I’ve just started to take a look at that. What you basically see is the top 25 insurers average about 80 to 83% of all direct premium that’s generated and the top ten do average about half of all that premium.

00;12;31;20 – 00;12;56;11
Speaker 4
It’s a very, very concentrated market in terms of who the big players are. And that’s important because these big players can command distributors shelf space and I’ll touch base on that a little bit later. But even though it’s concentrated, it is not stagnant. And I think this is an important thing. Chapter understanding because it drives a lot of the reason that annuity insurers are constantly looking to improve their product and attract and retain distributors and find a new solution.

00;12;56;14 – 00;13;22;11
Speaker 4
What you’re looking at on the right are the ranking position changes for the top 25 carriers last year, 2021 and what do I mean by a position change? Well, if you were 11th and you went to third or the other way around, you’ve moved eight spots in the ranking tables over that period of time. 13 of those 25 top 25 companies in 2021 had five or more place changes in this five year period of time.

00;13;22;14 – 00;13;47;15
Speaker 4
So even though it is concentrated, that ranking changes and our analysis shows what changes, that is a lot of product appeal which ties back to the market. If crediting rates are good and you’ve got a strong fixed annuity portfolio, sales will go up and your rankings will go up. On the other hand, if you’re a VA player and people are favoring our allies or fixed, your ranking might go down unless the market increases.

00;13;47;18 – 00;14;18;13
Speaker 4
So concentrated but fluid and that fluidity is what drives a lot of product development, a lot of sales to try and always maintain or increase your rankings. When talk about consolidation, what you’re looking at here is now shifting to the distributors that are out there. This is the M&A activity by year 18 through 2022 for asset managers, insurance agencies and broker dealers, asset managers, re registered investment advisors.

00;14;18;13 – 00;14;37;26
Speaker 4
Our eyes, as you see here that’s been bouncing around has been increasing. It’s been a trend that we’ve been following and we see a couple of reasons why it’s going to likely continue. First, you have a lot of agencies and asset advisors, managers who are looking to retire. They’re my age or older and they’re looking to sell their business on.

00;14;37;29 – 00;15;00;18
Speaker 4
Second reason, the cost of doing business is going up because of the regulatory issues that you have the need to invest in technology to meet those regulatory changes as well. Streamline your business. And then finally, you have the fact that there is private equity backing a lot of what we would refer to as aggregators. Those aggregators are looking to go out and acquire a lot of small firms that are looking to sell their books of businesses.

00;15;00;20 – 00;15;20;15
Speaker 4
What does this mean? If you’re an annuity insurer, you’re competing for shelf space. You’re looking to always attract and retain that. And when there’s an acquisition, you might lose that shelf space or you might have to compete in order to maintain that because the new buyer may have a different set of of of products that they want to represent.

00;15;20;17 – 00;15;51;00
Speaker 4
So this is going on. We think it’s going to continue to go on this year and for the likely future. One reason is seen here what you’re looking at here are the number of insurance agencies on the left and the number of investment advisory firms on the right by the number of employees that work for them. You will see that in both cases, the vast majority of the distributors that are out there are small shops, five employees or less.

00;15;51;03 – 00;16;12;28
Speaker 4
There’s an awful lot of these companies out here. And remember, I mentioned they’re facing issues around the need to pay for technology. They’re thinking about retirement. That’s sort of the supply for a lot of these aggregators. Makes it a very tough business to be an advisor. Always has been, always will be for the insurance companies. So the annuity carriers.

00;16;13;00 – 00;16;36;00
Speaker 4
This also means that their wholesaling operations have to be top notch because they now have to reach a lot of small shops. They have to be really efficient at scale, means they have to establish relationships with Imo’s. They can effectively go out and manage those relationships. The technologies that they’re using are changing the nature of both. Imo’s We see the I’m most competing more on the technologies they can now offer to these small shops.

00;16;36;02 – 00;16;59;12
Speaker 4
Come join our firm, our group. You’ll get access to better technology, but also the new the insurers themselves, their wholesalers have to go out and offer this material. So M&A is going to continue because of private equity and a lot of the reasons I mentioned. But there’s an awful lot of shops and annuity insurers are going to have to continue to focus on servicing a lot of small advisory firms.

00;16;59;15 – 00;17;23;02
Speaker 4
I want to switch to the third area that is shaping and has reshaped this annuity industry, and that’s the restructuring of the annuity balance sheets that are done by the annuity insurers. For us, it’s a question of supply and demand. You see the supply on the left. Those are the insurance companies out there that have and still have large blocks of annuity liabilities on their balance sheets.

00;17;23;02 – 00;17;41;29
Speaker 4
They have those reserves. They need the assets to back those up. A lot of those are looking to remove those liabilities off their balance sheets. And they’re doing it for a couple of reasons. First, a lot of those blocks of business have crediting rates on those fixed annuities that are higher than what they’re earning on their portfolios. That margin squeeze I was referring to.

00;17;41;29 – 00;18;11;03
Speaker 4
Right. They want to get that off because of the profitability on those older bucks earnings volatility. Fixed annuities, interest rates go down. You need to increase reserves and statutory basis. You see those reserves impacting the bottom line o your VA business. Well, equity markets get volatile. Two things happen. You have to increase reserves to cover the guaranteed benefits you put in there, but also the robust hedging programs that you have in place to manage that become more expensive when markets are volatile.

00;18;11;06 – 00;18;34;02
Speaker 4
And third, insurers are looking to redeploy that capital to other areas that they might find have higher growth potential for their business or simply to return to shareholders. Now, on the demand side, you’ve seen the emergence of new insurers. Reinsurers often backed by asset management companies or private equity firms that are out there actively acquiring closed, blocked business.

00;18;34;04 – 00;18;54;28
Speaker 4
They’re also starting to write business. And I’ll talk a little bit more about these in detail in just a moment. But from our perspective, this dynamic will continue because there’s still a lot of assets out there. A lot of insurance companies are looking to redeploy capital and remove some of those. And the desire among those buyers of those liabilities still remains and it’s likely to increase.

00;18;54;28 – 00;19;17;27
Speaker 4
And by the way, we happen to think the emergence of these new carriers is actually a positive for the annuity industry because what they represent is new capital coming into the annuity space, buying liabilities and supporting growth. And we’ve looked at the need for capital to come in and support the annuity industry. It’s going to be great over the next ten years as we start to realize the benefits of the Secure Act.

00;19;17;29 – 00;19;44;09
Speaker 4
The annuity industry will need capital, it will need to attract it, and other examples of companies are doing it. So who are some of these? What you’re looking at? There are just the high level insurance restructurings since 2017, 20, 2022. You see the names here. These are multibillion dollar transfers of liabilities from an established carrier to one of these new companies coming in here.

00;19;44;11 – 00;20;06;03
Speaker 4
It is a really, really important activity. It’s reshaping the business and they are starting to really expand their business to start writing new business. In fact, if you look, I just pulled the numbers. I’m just going to look at it. But the number one company that generated direct individual annuity premium in 2022 on a statutory basis was one of these players.

00;20;06;06 – 00;20;26;09
Speaker 4
I won’t give the same away, but it starts with an A that would vary by product. I want to be very clear on that. Different products have different leaders, but overall that company was these companies are writing business and in doing so they’re also attracting the attention of regulators and consumer groups who are uncertain about what’s going on with them.

00;20;26;12 – 00;20;48;13
Speaker 4
They look at the fact that they are owned by private equity companies or asset management companies, and they’re uncertain about that relationship. And that’s attracting a lot of regulatory attention from the NRC, S.E.C. and Congress. Part of that, we think and I’ve been writing a lot about this, I’ll talk later if if you want to talk. We think part of that is the misunderstanding by groups looking at it.

00;20;48;13 – 00;21;16;29
Speaker 4
The don’t understand the reinsurance that they’re using, why they’re being offshored and how they’re structuring their business. Part of it, though, is because some of those companies are not the most transparent or opaque when it comes to being able to understand their business model and where risk lies. But here’s what’s happening with this business, with these players. As more and more of those companies were created, they started going after the same blocks of business.

00;21;17;01 – 00;21;41;18
Speaker 4
The early entrants were able to acquire those closed fixed income blocks at a really great ROI. More competition has led to higher costs and lower ROIC for those carriers. As a result, we see them already starting to move beyond looking for closed block business or writing new business. These are the five areas we think and have already seen some of these players move into variable annuities.

00;21;41;20 – 00;22;12;00
Speaker 4
There’s a lot of variable annuity liabilities out there. Last year we saw Talcott repacking some up. We also saw a venerable picking some of those up, as well as Talcott picked up some universal life from second gear, secondary guarantees, variable annuities, individual life insurance, we think will be liabilities that they’ll be looking at pension risk transfer. For those of you that don’t know, that’s when a defined benefit plan takes a block of its retirees and transfers those liabilities to an insurance company through an annuity contract.

00;22;12;02 – 00;22;31;07
Speaker 4
Some of these companies are already actively involved with this, as well as some of the large established players. Pensioners transfers will continue to go. Funding agreement backed securities had been a very hot market up until last year. We’ll see how they’ve done. But a funding agreement is a type of annuity contract sold on an institutional basis similar to a.

00;22;31;10 – 00;22;58;01
Speaker 4
Those can be packaged up into a asset backed security and sold an institutional investor. Oftentimes, those are stable value funds that end inside of for one K through playing in that space and finally purchasing credit origination platforms such as an aircraft leasing company. What you see there is companies acquiring a source of private credit, which these companies are using to increase their investment return by buying the sources of credit.

00;22;58;01 – 00;23;25;12
Speaker 4
They can fund that themselves. I want to switch now to the Secure Act and what we think will be the big market that you’re looking at here. So variations of this earlier, but this is the retirement plan assets since 2000 broken down by DC plans DB plans IRAs and that little green block are annuities. There are some annuities by the way, inside IRAs and Eisai tracks them that way.

00;23;25;14 – 00;23;45;15
Speaker 4
This is a great opportunity for insurers. Now, they’ve been playing in this space for a while, but the secure acts really open up the market for DC plans to come in here because it removes some of the hindrances around plan sponsors fiduciary concerns about putting an implant annuity. This is opening up this market, but it’s going to take time.

00;23;45;18 – 00;24;08;18
Speaker 4
The carriers have to build the networks to interface with the plan. Sponsors and the record keepers, and that goes both ways. That will take time, but will not happen overnight. But we do anticipate over the coming decade, DC plans for one K plans will become a major source of annuity growth. This is what we look at when we were looking at secure 2.0 act.

00;24;08;20 – 00;24;32;01
Speaker 4
What this really is doing is is creating a four generation opportunity for the annuity insurers, right? Traditionally, we’ve been focused a lot on baby boomers because they were the ones who been saving and now moving into retirement. Right. But with secure 2.0 and secure 1.0, that’s opening up the DC plan space for savers and Generation X millennials and soon to be Generation Z’s.

00;24;32;03 – 00;24;56;02
Speaker 4
What does this mean and why is this so important? Because think about it. The 4001k, which is the currently the bedrock for most people’s retirement savings, was never, ever designed to be a retirement income solution. It was a retirement savings solution. It became the default savings solution. And now people are trying to figure out how do I take these assets and turn it to a retirement income?

00;24;56;04 – 00;25;20;26
Speaker 4
Secure 2.0. With the introduction of any plan annuities has those get built up? Turn the 401k into a true retirement plan. People can accumulate assets and then have the accumulation built into it. When they do retire, annuity insurers will be looking at how they build that out. It opens up a new generation and makes the for one key, in our opinion, a true retirement product.

00;25;20;28 – 00;25;42;06
Speaker 4
I mentioned that annuity insurers had been involved in the for on case space, usually as record keepers or and as you see here, mutual fund companies putting plans in there. We think that, you know, this is going to continue. They’re not going to be getting rid of their mutual fund businesses. But it also starts to point out the bigger thing about the annuity industry.

00;25;42;08 – 00;26;09;28
Speaker 4
At the end of the day, large annuity players are asset managers themselves, whether they get those assets from an annuity sale for a before one k company from a pr T, it doesn’t matter. They’re all focused on gathering and managing assets. If they build out the secure 2.0 act and realize that and they increase sales of spheres to more retirees, will we see a focus shift within these companies to managing longevity risk and how are they going to do that?

00;26;10;04 – 00;26;31;26
Speaker 4
We’ve seen that in the UK since 2000. As a UK, insurers that have large blocks of annuities on their balance sheets have looked to manage longevity risk through things like longevity, reinsurance. Finally, I just want to close on the thing that I know that a lot of you are probably going to be interested about. That’s insurance technology and retired tech.

00;26;31;28 – 00;27;00;08
Speaker 4
We use insurance technology accounting because that’s an encompassing faith phrase that covers everything, that deals with any technology that touches the insurance industry. So here’s what you’re looking at here. This is the statutory amortized expenses for the life annuity industry in billions from 2008 through 2020. You see around 2013, 14, it really starts to increase. Now, here’s something that puts this number in context.

00;27;00;11 – 00;27;28;17
Speaker 4
For every dollar of reserve liabilities that were increased over this period of time, for every dollar of new business liabilities created. Insurer spent three times that on technology. They’ve been investing heavily in modernizing and transforming their back offices, their user experiences, their age and expenses. This has been across the board big companies, small companies, mutual stock. It is a big thing and hasn’t had an impact.

00;27;28;17 – 00;27;53;13
Speaker 4
That’s the question we will often get asked. Can I see how this is actually playing out on my and my income? Because I’m spending all this money in significant investments? Well, one way we look at it is to sort of say, can you see an improvement in productivity? What you’re looking at here in the dark blue is direct life annuity premium written per employee in thousands.

00;27;53;16 – 00;28;21;21
Speaker 4
The lighter blue line are the number of employees over this period of time, direct premium written has increased about 52%, while headcount has only went up about 13%. Now to us, that suggests that this technology investment is paying dividends. Insurers are able to do more business with fewer people, and the people they have are focused on doing the highly value added activities that support growth and profitability.

00;28;21;23 – 00;28;53;26
Speaker 4
So far, so good, but it’s also transformed the nature of work within the insurance industry. And you see that here 2000 to 2021. This is the change in employees by major occupational groups within the life insurance industry. Over this period of time, office and admin support occupations have seen a 20% decrease in the number of employees in those fields in the insurance industry.

00;28;53;29 – 00;29;31;20
Speaker 4
Meanwhile, computer and mathematical operations increased about 58%. Managerial skills increase as well. You’ll also notice something else. Look at the $101,530 161 $910. That’s the average salary for somebody in this industry in those fields. They’ve gotten rid of a lot of low paid employees that were doing the administrative clerical tasks. Their jobs have been automated. They’ve been replaced with very, very expensive, highly demanded expertise and skills.

00;29;31;23 – 00;29;55;27
Speaker 4
Those employees are also sought by other financial service companies. And as a result, there’s a huge warrant talent. Rackspace Technology did a survey last year. I think it was about 1400 insurance tech officers and they said the lack of available technology, talent was their number one challenge in achieving growth over the next three years. Now, we’ve had discussions with insurers.

00;29;55;27 – 00;30;21;23
Speaker 4
You know, a lot of times we’ve talked a couple of years ago, if you’re a small regional insurer outside of a large metropolitan area, it was tough to attract that talent. More recently, conversations have shown that with a work from home environment and encouragement that is coming to create some solution to this war for talent. So that’s good for those companies because they can now attract the talent they need.

00;30;21;25 – 00;30;38;04
Speaker 4
Finally, I just want to close base with what we think, and this is what we do accounting twice a year. We forecast the overall industry’s profitability and premiums. This is out of date because we’re just in the middle of doing the new one. Contact me in about two months and I will tell you what the new numbers are.

00;30;38;07 – 00;30;59;02
Speaker 4
But overall, when we look at the annuity space, here’s what we see driving the business forward. One, the demographic trends that Paul mentioned remain in place. People will continue to need to save for retirement and generate retirement income that’s driving sales. We think premium will go up. It will vary from product to product, but overall premium growth will remain positive.

00;30;59;04 – 00;31;21;22
Speaker 4
Profitability, though, is a little bit more difficult because there’s three big factors on a statutory basis that affect profitability. One is reserves. What will reserve changes do? And that’s depends upon interest rates and equity markets. What will happen as far as the need to do transfers from the separate accounts that comes into play? And finally, what will reinsurance do?

00;31;21;23 – 00;31;45;18
Speaker 4
We think reinsurance will continue, and reinsurance on a statutory basis tends to have a negative impact on overall revenue. And with that, I have to play for my compliance department the obligatory compliance slides. They’re happy now, but I’m happy to take any of your questions. I think we’ve got about 2 minutes left for 3 minutes. Otherwise I’ll talk to you at the networking appointment.

00;31;45;20 – 00;31;49;16
Speaker 4
Hey, Warren, how you doing?

00;31;49;19 – 00;32;02;05
Unknown
Heard stresses and strains of the personal financial sector on charge. Okay.

00;32;02;08 – 00;32;26;13
Speaker 4
So. So the question was. So the question was, given the recent stresses in the in the banking system that we’ve seen, how will that to what extent will that affect some of the trends and issues I’ve talked about here? The most direct impact, I think, right now, and one that I think is probably germane and many of you in this audience are thinking about as well as what’s going to be the impact on technology, especially as startup firms are unknown yet.

00;32;26;16 – 00;32;45;29
Speaker 4
I mean, at least they were made, you know, for for a CRB, they at least got their money there. But what will that do to the overall funding and capital availability for startups? You know, you look around, he’s already seen that there was some reticent over 2022 to 4 for new startups. I think that that’s the biggest issue.

00;32;46;02 – 00;33;07;28
Speaker 4
The other issue is what’s it going to do to the interest rates? Will the Fed continue to raise interest rates back off slightly? I don’t make a business of predicting what the Fed will do. I think that something beyond my pay grade. But again, if you saw interest rates drive fixed annuity sales to a great extent and also in the equity market volatility comes out will affect VA sales.

00;33;08;04 – 00;33;14;05
Speaker 4
So I think what the economy will do as a result will be a driver of sales. Stephanie, what.

00;33;14;05 – 00;33;25;20
Unknown
Do you see about the young people joining the workforce and not really saying why am I saving money for the next 60 years for my.

00;33;25;22 – 00;33;46;10
Speaker 4
The question was, what about what would we say to a young person entering the workforce today who’s trying to say, you know, why should I save for something that’s going to happen in 40, 50, 60 years down the road? What I can barely afford at my Starbucks or Peet’s Coffee, I think that is something in a way that will have to happen once they get in there.

00;33;46;10 – 00;34;12;11
Speaker 4
And some of the things in the Secure Act, I think, make that attractive. The ability to have your student loans matched as an opportunity. That’s the thing that will encourage younger savers. I think the fact that they can actually now do automatic enrollment starting in 2025 for new plans with automatic increases that will help generate sales down the road, get people thinking about it, and then simple things like on your 401k statement, how many of you noticed that actually says what your guaranteed annuity income is going to be?

00;34;12;13 – 00;34;41;03
Speaker 4
That’s put in there too, so that people will start to think this is not just a pile of money, this is my retirement income. And so it’s an educational process. I think that’s a crucial thing. But I think some of these changes from secure actor designed to try and enhance that awareness. And with that, I think my time is up, but I’m happy to talk at lunchtime or in time elsewhere on any of these.

00;34;41;06 – 00;35;04;21
Speaker 1
And with that, we’re going to take a break for lunch and networking. We’re going to welcome you all back for some eco resources, some remarks in a few minutes. But please make yourselves at home. Thank you. Thanks for listening. If you’ve enjoyed the show, please rate and recommend us on iTunes, Stitcher, Overcast, or wherever you get your podcasts, you can also get more information at that annuity show dot com.