News flash: If the annuity-friendly SECURE Act becomes law, it provides a growth opportunity for the life insurance industry which provides annuity products.
It might be stating the obvious, but when a respected ratings agency like AM Best says it, it still carries weight.
New commentary from the company says proposed legislation to bolster retirement security that’s trying to make its way through Congress would expand market opportunities for both the retirement and employee benefit segments of the U.S. life insurance industry.
The SECURE Act, of course, sailed through the House of Representatives with a 417-3 vote back in May but remains stalled in the Senate thanks to some “holds” on the bill placed by Senators including Ted Cruz.
The Retirement Enhancement and Savings Act (RESA), also being considered by the Senate, has a number of similar key provisions designed to promote retirement security in the United States.
AM Best says either bill could offer broader market opportunities for in-plan annuities to the U.S. life/annuity segment and spur expansion of 401k plans in the smaller employer markets.
In a new available for purchase Best’s Commentary, titled, “SECURE Act Offers Opportunities for Annuity Providers,” AM Best states that the relaxation of fiduciary standards in both bills represents an opportunity for U.S. life insurers.
In particular, the safe harbor provision would allow plan sponsors to select insurers to provide guaranteed income solutions, and then protect those sponsors from liability should participants or their beneficiaries suffer losses due to the insurer’s inability to satisfy its financial obligations under the contract terms.
In the U.S. marketplace, less than 50% of plan sponsors offer an in-plan retirement income option, and just 20% offer a guaranteed income product.
AM Best believes that greater participant awareness of lifetime income is an important step in enhancing retirement security and will provide plan participants with a way to translate retirement assets from the accumulation phase to drawdown over their lifetime. As annuity providers, insurers with large employee benefit segments and insurers that manage retirement assets stand to benefit the most from these proposed changes.
In addition, AM Best believes the ability to offer in-plan annuities as part of 401k plans will provide opportunities for the industry to grow its individual annuity business. However, the industry’s risk profile will increase due to the growing exposure to longevity risk, which has risen due to the rapid growth of the group pension risk transfer market in the United States.
Despite uncertainty as to how many small employers will adopt a plan, the growth potential is significant, as roughly 36% of the U.S. workforce is employed by small businesses.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.