Fabien Feron, Director Project Management, Fusion Invest at Finastra

Annuities products have experienced considerable growth and transformative change in the last five years, driven by various factors such as ageing populations, uncertain economic environments, and technological advancements.

The increase in life expectancy worldwide is having a significant impact on the type of products that consumers need, with people often prioritizing affordability and the need for guaranteed income over a longer period. Additionally, macroeconomic factors, such as high or fluctuating interest rates, are shaping how consumers choose to manage their money. Many are opting for products that offer stable and predictable returns, with a greater urgency to ensure financial security for pre-retirees.

When it comes to technology, we are seeing an increase in highly performant, protection and tax-deferred products, as well as digital channels and distribution methods for annuity products. All of this is contributing to a flourishing annuities market.

The growth potential of annuities

Annuities provide future retirees with insurance against outliving their money. Savers can select the most beneficial risk-return profile for their situation, with options of immediate, fixed, indexed or variable annuities. In recent years, Registered Index-Linked Annuities (RILAs) and Fixed Indexed Annuities (FIAs) have gained increasing popularity, and this is particularly prevalent in the US.

According to LIMRA, US RILA sales reached $65.2 billion in 2024, up 37% from the previous year and marking the 11th consecutive year for record-setting sales. Additionally, FIA sales totalled $125.5 billion in 2024, up 31% from the prior year and the third consecutive year of record sales.

Record sales of Registered Index-linked Annuities (RILAs) and FIAs are predicted to continue in the US and potentially spread across other countries such as Japan, Korea, Canada and the UK, due to their potential for growth and income guarantees. This reflects the broader shift towards financial products that offer stability and predictable returns in retirement planning amidst economic uncertainties and longer lifespans. RILAs combine the growth potential of an equity index with downside protection. They are therefore particularly attractive as they offer both growth opportunities during up markets and safeguarding during down markets.

However, many annuity carriers are facing significant barriers for capitalizing on the high growth potential of this market. Monolithic and highly tailored legacy systems often hinder agility and innovation, making it more challenging to accommodate rapid sales growth. When it comes to managing more complex products such as equities derivatives, institutions must be able to effectively manage risks, make informed decisions quickly and have straight-through processing (STP). Fragmented and siloed technology, vertical functions and services can make this challenging, while also causing disconnected customer journeys.

Capitalizing on the opportunity with technology

To truly benefit from this trend, insurers and retirement service providers must modernize their technology. A key priority should be opting for a platform that is tailored for annuity carriers and provides industry-leading technology for valuations, dynamic hedging, operations and accounting, and risk capabilities. With cloud-based solutions, institutions can enhance process efficiency through automation while having the necessary agility and scalability to adapt with change. Composable banking, curated in the right way, can also help to reduce the complexity, risk and fragility of IT systems. Through prebuilt microservices and containerization, components can be connected via APIs to support seamless customer journeys, while increasing an institution’s flexibility, stability and speed.

When choosing a platform, it is crucial that institutions consider the need for front-to-back STP, which is critical for handling complex index-linked instruments efficiently. This involves automating the entire transaction process, from initiation to settlement, to reduce manual intervention, and minimize errors. By implementing STP, institutions can improve operational efficiency, reduce costs, and enhance the accuracy and speed of processing annuities transactions.

Data and advanced analytics are becoming increasingly crucial for annuity carriers to optimize their derivatives strategies. Through sophisticated risk management tools, robust modeling capabilities, and real-time data analysis, institutions can effectively hedge against market volatility, interest rate fluctuations, and other financial risks. Access to data and analytics also enables institutions to provide customers with tailored experiences and drive more business value. For example, having a single customer data view across the industry means an institution can see when an existing insurance customer has purchased an annuities product. This provides much more insight into individual behavior, meaning institutions can adopt a more targeted marketing approach and tailor products around customer needs.

The ability to reimagine workflows is being fast-tracked through the advent of Generative AI (Gen AI). Tools such as large language models (LLMs) provide employees with instant access to information, whether around market sentiment or details about different products, enabling them to potentially make more informed investment decisions and better advise their customers.

Maximizing growth through innovation and collaboration

The biggest challenge and opportunity in the annuities market right now, is that annuity carriers must rethink how they run their business to capitalize on the growth potential. This involves addressing technology modernization, process simplification, and developing strategic partnerships to create an operating model that enables growth.Finding the right partners and ecosystems where financial institutions, insurtechs and technology providers can easily integrate and collaborate will be crucial for success.

Finastra Fusion Invest delivers scalability for annuity carriers at an optimized cost. It unites all users with a single data source across one powerful platform, to manage both the investment and hedging book. Deployable on premise, private cloud or public cloud, Fusion Invest supports the needs of all annuity carriers. The solution is also customizable right down to the pricing models. Annuity carriers can create their own processes and customize the application to meet their needs, all while realizing enhanced efficiency and hedging outcomes.

By leveraging such solutions, institutions can ultimately develop more sophisticated and customer-centric products, streamline operations, and enhance risk management capabilities – all while benefiting from the continued growth that is expected in the annuities market.