This Month:
Securian: New annuity design for 'inevitable' inflation
Dubitsky: The new direction of income planning
Variable Annuities Post Record New Sales
Brown: Consumers wary of future fixed annuity performance
Beacon: Income, Indexed annuity sale up in Q3
Q3 VA product changes slow, benefits more generous
VA sales see double-digit growth in Q3
Hartford VA enhanced for 'living & giving'
Annuity sales climb from 2010 levels
New Product Feature
Securian's new annuity product well-positioned for inflationary times
Company designs a product with the 'inevitable' in mind
St. Paul, MN, - Securian's first annuity product designed for nationwide distribution, SecureOption Focus, positions the company for strong sales on the inevitable day when interest rates start rise. “The fixed sales success we had in 2008 and 2009 showed us that fixed
annuities from a company with our ratings strength play well in the marketplace," says Dan Kruse, second vice president and actuary, Individual
Annuity Products. "Interest rates are low now, but they will rise and we are ready for it."
SecureOption Focus is designed to appeal to advisors as well as clients. "It's a fixed deferred annuity with features and a compensation structure
we anticipate advisors will appreciate," says Kerry Geurkink, director, Individual Annuity Marketing. "And for clients, it offers a choice of
initial guarantee periods, a return of premium guarantee and a bonus interest rate in the one year guarantee period."
Geurkink says SecureOption Focus' basic design is common in the bank channel. Making it available in all US jurisdictions provides opportunities
for Securian to open new marketing channels to add to its existing career and independent marketing organization (IMO) distribution.
"Combined with the product's design, Securian's reputation will give the product strong appeal in new channels," says Geurkink. "Our story of
financial strength and the fact that we've been around for more than 131 years show that we are here to provide products and services for the long
run."
Securian Financial Group helps provide financial security for individuals and businesses in the form of insurance, retirement plans and investments.
Securian has more than $770 billion of life insurance in force and nearly $33 billion in assets under management as of December 31, 2011, and a
nationwide work force of 3,500 employees. Securian serves more than 9,000,000 individuals in the U.S. Annuities are marketed through Securian
Retirement Distributors, 1-866-335-7355.
Minnesota Life Insurance Company and Securian Life Insurance Company, subsidiaries of Securian Financial Group, Inc., are highly rated by the
major independent rating agencies that analyze the financial soundness and claims-paying ability of insurance companies. For more information about the rating agencies and to see where Securian's ratings rank relative to others, go here.
The new direction of income planning
Guarantees Are In; Speculation Is Out
by Douglas Dubitsky
Mr. Dubitsky is Vice President, Retirement Solutions for The Guardian Life Insurance Company of America. He can be reached at douglas_dubitsky@glic.com
There's no mistaking the sobering change that has swept through the retirement savings marketplace since 2008. A bull-market fixation for investment growth is gone. A focus on accumulation of assets has changed, stressing continuity and dependability. Blame it on the aging of America or call it collective pragmatism, the fact is the industry's new focal point is distribution, namely, how we can ensure clients receive steady income over the course of their retirements. Guarantees are in, speculation is out. Today, retirees want income protection, not rates of return.
For evidence of American's new take on retirement savings, look no further than annuity sales in 2010. Immediate annuity sales reached $7.6 billion last year according to the insurance industry association LIMRA, a mere 4% off record highs in 2008.
The reasons for the shift are very logical. The average life expectancy in the U.S. is 76 years for men, 80 for women, so it's not farfetched to think your clients might live 25 or more years in retirement which only increases the possibility of them outliving the money they've saved. Meanwhile, it's impossible to ignore the volatility that's gripped global financial markets in recent years. Your clients are likely riveted to today's perfect storm of CNBC headlines about Southern European debt woes, partisan U.S. fiscal budget squabbles, Standard & Poor's downgrade of Treasury bonds and talk of a double-dip recession. A generation of pre- and post-retirement clientele is on edge, and rightfully so. They believe that each sharp swing of the market will hit directly in their pocketbook or wallet.
For advisors, the change in attitude translates into a formidable opportunity because there's a growing demand for products that safeguard assets and deliver sure, predictable results. Chief among them: the single premium immediate annuity (or SPIA), an instrument that's designed to function as a simple way to produce retirement income. SPIAs establish an easy way to provide steady streams of income over the 10-, 20- or 30-year course of retirement (which could be a lifetime) without the worry of it being affected by the fluctuations in the financial markets.
New Ways of Thinking
The first step on the road to distribution-centered thinking is a reexamination of long-term retirement needs from a new perspective. In the past, it mattered how a client accumulated retirement savings. Now, it matters how a client can produce income from those retirement savings and how long they can make it last.
Let's face facts. The U.S. government's Center for Medicare and Medicaid Services estimated that 9 million men and women over the age of 65 will need long-term care this year, a number that is expected to jump 33% to 12 million in 2020. According to calculations released by the Employee Benefit Research Institute, a 65-year couple in 2009 needed $210,000 to have a 50% chance of meeting their health expenses. The same study put a $338,000 price tag on a 90% chance of paying the medical bills. Numbers compiled by the U.S. Department of Health and Human Services estimate that Americans who reach 65 have a 40% chance of entering a nursing home at some time and that 10% of those who do will end up staying five years or more.
Don't forget the growing number of sandwich generation members, he legion of baby boomers that are now stretched emotionally and financially to help both their parents and offspring. There is increasing likelihood that your clients who belong to this demographic group will have to shoulder financial responsibility for their elderly mothers and fathers. The Center reports that most elderly in need of care, 70 percent, are helped out by family and friends. And in tough economic times, retirees may have to come to the aid of grown children who may need a lifeline even after graduating from college. Boomeranging sons and daughters only add to the burdens draining your clients' retirement funds.
Longevity, and the many personal and familial bills that come with it, makes it ever more imperative to create sound income distribution strategies that can usher clients through their retirement in comfort and confidence. The foundation must be strong, sturdy and dependable. It begins with a source of income that your clients cannot outlive, anchored in products that clients can only purchase through you, their advisor.
Embracing Change
Don't think of SPIAs as an end or a slowing of your advisory relationship with clients. SPIAs are only for a portion of your clients' assets, not all of them. In fact, SPIAs not only have the potential to preserve your role as an investment advisor, they can open you up for additional opportunities with your high net worth clients. That’s because SPIAs enable your clients to be assured during times when uncertainty has pervaded financial markets the world over. SPIAs work as a stabilizing position in your clients' retirement portfolios. They provide peace of mind and the comfort in knowing that a chunk of income, to cover living expenses and fund the lifestyle they envision, is guaranteed and independent of market returns. Once clients feel confident that a foundation is in place, it becomes much easier for you to open the conversation about investing the remainder of their assets. And of course, your job going forward will be to advise them on ways to best manage those assets.
Designer Income
It's time to change our perception of immediate annuities to fit the times and our clients' needs. That's because they effectively function as 'designer income,' a product your client can set to generate regular income checks for a specific period of time or for their lifetime. Some SPIAs may even give your clients an option to increase their payments year over year to help combat inflation.
It's a good idea for advisors to begin exploring SPIAs as guaranteed income annuities from day one when you sit down with clients who are nearing or at retirement. LIMRA studies show that the average age of immediate annuity buyers is 73, with an average premium of just over $107,000. Interestingly, the same reports show that a third of buyers are clustered around the ages of 62, 65 through 67 and finally 70 to 71. The message is this: There's plenty of room to expand the market.
Don't forget high net worth clientele. The truth is that by securing a portion of your high-net worth client's assets for retirement, you can cover their basic needs or lifestyle needs. The remainder of your time can be spent setting up strategies to manage their other discretionary assets.
Diversifying
In closing, I'll draw on an analogy I often use to explain how your clients are likely to view SPIAs in times like these. Consider this: Homeowners may pay for fire insurance and, hopefully, will never have to tap into the policy's benefits. Why wouldn't you want them to consider a way to protect their retirement income, but be able to tap its benefits immediately and for the rest of their lives? SPIAs can be thought of this way, and you'll see that SPIAs are coverage to assuring retirement income, guaranteeing that your clients never outlive their money.
Guaranteed Living Benefit Riders Popularity
Continues With Variable Annuity Buyers
Third quarter experiences shift in rider market share, as GMIB riders jump five percentage points
WINDSOR, Conn., - For the third consecutive quarter, the guaranteed living benefits (GLB) riders were elected 88 percent of the time (when offered), according to LIMRA's third quarter 2011 annuity study.
"Consumers continue to choose GLBs to ensure their retirement security," said Jafor Iqbal, associate managing director, LIMRA Retirement Research. "We noted a significant shift in rider market share this quarter. While guaranteed lifetime withdrawal benefit (GLWB) riders continues to be the most popular rider, making up 57 percent of the market, it dropped four percentage points from prior quarter and eight percentage points from two quarters ago. We attribute this to a single company's growing market share, whose product offered a guaranteed minimum income benefit (GMIB) rider."
GMIB riders were elected 27 percent of the time an increase of five percentage points from prior quarter; while, guaranteed minimum accumulation benefit (GMAB) and guaranteed minimum withdrawal benefit each had had two percent market share in the third quarter of 2011.
LIMRA estimates that in the third quarter of 2011, GLBs were elected in contracts representing $25.2 billion, out of $28.7 billion new deferred VA premium where GLB was available. With the third quarter experiencing significant market losses, VA assets with GLB riders decreased eight percent from $575 billion in the second quarter 2011 to $530 billion at the end of the third quarter of 2011. However, they are still 19 percent higher than in the third quarter of 2010. Total VA assets reached $1.51 trillion at the end of third quarter of 2011, a decline of three percent from $ 1.46 trillion for the same period in 2010.
GLB election rates were at 91 percent in the bank and wirehouse channels, while the career channel continues to climb, growing one percentage point to reach 79 percent in the third quarter. Rates of election for GLB slipped one percentage point in the independent channel, to 90 percent. LIMRA's Variable Annuity Guaranteed Living Benefit Election Tracking Survey collects VA GLB sales, election rates and assets on a quarterly basis. The 23 survey participants represent 96 percent of third quarter 2011 industry sales in which a GLB was elected.
View the executive summary of the GLB election rates in the third quarter. For more statistics, visit the newly updated Data Bank.
Variable Annuities Post Record New Sales
VA Net Cash Flow Achieves Highest Level in Fourteen Quarters;
YTD Fixed Sales Tracking Near 2010 Levels
WASHINGTON, D.C.- The Insured Retirement Institute (IRI) announced last week final third quarter results for the United States annuity industry. Net variable annuity sales were $8.8 billion, the highest level in fourteen quarters when third quarter 2007 levels were $8.9 billion. In addition, revised annuity sales for the third quarter show a greater year-to-year growth, and a smaller quarter-to-quarter decline than originally estimated. Third quarter industry-wide sales were $58.1 billion, up 6 percent from third quarter 2010 sales of $54.5 billion. Compared to second quarter sales of $60.4 billion, third quarter sales were down 4 percent.
"The record level of new sales of variable annuities clearly demonstrates that the products are competitive in the marketplace and that they are attracting new investors at an expanded pace," said IRI President and CEO Cathy Weatherford. "The overall strength and growth of the industry is not only underscored by these encouraging numbers, but also that sales are expected to exceed $150 billion for the year. As year-to-date fixed sales remain strong, and on par with 2010 levels, the industry is poised to round out the year on a very high note."
Year-to-date fixed annuity sales were $58.3 billion, 0.8 percent below $58.8 billion in 2010. Fixed annuity sales for the third quarter were $18.9 billion, down from $20.4 billion in the previous quarter, representing a 7 percent decrease. Year-to-year quarterly sales of fixed annuities were down 7.3 percent, with the third quarter of 2010 coming in at $20.4 billion.
"Thanks to increasingly risk-averse consumers and their demand for guarantees, fixed annuity sales have held up well in spite of exceptionally and persistently low interest rates" said Beacon Research President Jeremy Alexander.
Variable annuity sales for the third quarter were $39.1 billion, down 2 percent from $39.8 billion in the previous quarter. Year-to-year quarterly sales of variable annuities posted a 14 percent increase from third quarter 2010 sales of $34.2 billion. Year-to-date variable annuity sales were $118.3 billion, 18 percent above $100.7 billion in 2010. There were $26.4 billion in qualified sales and $12.2 billion in non-qualified in the third quarter.
"The surge in net sales is a very positive development, indicating rapidly growing interest in the use of variable annuity guaranteed income benefits as an important component of a portfolio designed to produce sustainable income throughout one's retirement," said Morningstar Director of Insurance Solutions Frank O’Connor.
For complete data reporting, please access the PDF here.
Consumers wary
of future fixed annuity performance
Can interest-rate benchmark features offer a viable solution?
By Kenneth L. Brown
Mr. Brown is the vice president of Sales Development & Strategic Support for ING U.S. Insurance's annuity and asset sales business, overseeing marketing, product development, regional wholesaling, sales training and development, and wholesale operations for the company's annuity business.
Interest rates continue to bob around at historically low levels. In early October 2011, the 3-month London Interbank Offered Rate (LIBOR) rate, which underpins a range of interest-sensitive consumer products such as mortgages, was below 0.4%. This has made home refinancing the topic of headline news- but the story surrounding interest-based financial instruments has been a disappointing one.
Consumers looking for interest income in this environment are short on options. Traditional savings accounts today provide only negligible interest, with money market accounts being only slightly more generous. And while certificates of deposit (CDs) are still the go-to instrument for many consumers seeking security for their money, the rates even for longer-duration commitments have been very low.
Not surprisingly, sales of traditional fixed annuities have been severely affected by these low interest rates and other factors. Second-quarter 2011 fixed annuity sales were $21.5 billion, according to LIMRA, which is a big drop from their most recent peak of $36.7 billion in the first quarter of 2009. Fixed index annuities have fared better over that same period, rising slightly: Sales in the second quarter of 2011 were $8.1 billion, compared to $7.2 billion in the first quarter of 2009, LIMRA said.
The durability of fixed index annuities clearly has to do with their interest upside potential and greater degree of flexibility than traditional fixed annuities. Consumers with fixed-indexed annuities have the opportunity for interest-crediting potential linked to the performance of one or more market indexes or benchmarks. This lets the consumer direct all or part of the annuity's value to the index, while still being able to use the fixed-interest strategy. The consumer gets a credit if the index rises (subject to their contract's specified limits), and their principal is protected if the index drops. They also have the option to re-allocate between the fixed and index components, but only on the contract's anniversary date.
What if interest rates rise?
With interest rates so low, however, many producers and consumers are wary of fixed annuity products. After all, it seems as if interest rates have nowhere to go but up. As a result, even though fixed index annuities offer some attractive flexibility, many consumers are sitting on the sidelines with their cash, waiting out the current uncertainty in short-term instruments such as CDs.
Acutely aware of this sidelining of consumer cash, insurers are innovating rapidly to give consumers and producers additional options to deal with the interest-rate uncertainty. For example, several carriers have introduced interest-rate-based crediting strategies that use a point on a published 'swap curve' as the benchmark rate. For its part, ING USA Annuity and Life Insurance Company has developed a new feature that bases credits on an increase, if any, in the 3-month LIBOR. If this benchmark rises from one annuity anniversary to the next, so does the interest credited. This interest rate benchmark feature, which is available only on some of the company's fixed index annuities, works like this:
- No matter what equity markets do in a given year, if interest rates rise while the annuity's balance is allocated to the interest rate benchmark strategy, the client gets a credit.
- Producer and client can execute a diversification strategy within the product itself, adapting the product by balancing the effects of the annuity's three options, guaranteed rate, equity index and interest rate benchmark.
- Clients can use the feature opportunistically, taking advantage of the interest rate benchmark strategy in certain years, but not in others, depending on their outlook.
- If the benchmark rate drops during a particular contract year, while the feature will provide zero credit, the client's principal will be protected.
Since the interest rate floor resets on every contract anniversary date, just as annuity index floors do, the client has the potential for new credits based on interest rate increases, regardless of the previous year's ups or downs.
Consumers still wary of annuities
As many producers know, consumers can be skeptical of annuities across the board, even when the merits of some varieties may be a good fit for the client's need. When launching a discussion, consider that the client may have certain misconceptions about annuities that will need to be addressed. Here are a few common ones:
- Misconception #1: Fixed annuities have a lot of hidden fees and charges.
Some consumers think that fixed annuities have a range of fees and charges, many of them large and hidden away. Yet, in reality, there are no front-end charges in the base fixed annuity. The only fees deducted from the contract's value, which producers are obligated to explain, are to cover value-added riders, such as those related to guaranteed retirement income features or enhanced death benefits.
- Misconception #2: Crediting limits are just designed to increase insurers' profits.
Some consumers believe that limits on market upside are put in place so that insurers can 'keep the difference' if the market or interest rate outperforms. Yet, in reality, insurers purchase hedges to cover the cost of index credits paid to consumers. There is no 'windfall' effect.
- Misconception #3: Surrender charges are unreasonably high.
Annuities by nature are designed for the long-term, particularly for people who do not expect to make withdrawals for at least 10 years. As such annuity contracts have surrender charge schedules, which are applicable if annuity owners make withdrawals before that time. Many annuities comply with the so-called 10/10 rule, which limits surrender charges to 10 years and to 10 percent in the first year of the annuity. Producers and consumers also should know that surrender charges diminish over time, vanishing entirely after 10 years for each premium payment. To give consumers some access to their contract's funds, many insurers allow withdrawal of up to 10 percent of the annuity's value each year without penalty.
Off the sidelines, into the game
Consumers who have sidelined their long-term money in short-term instruments run the risk of missing out on key opportunities for growth in the coming years, which could reduce their prospects for a secure retirement. While fears that rates could rise soon are understandable, producers can provide guidance and information about key innovations in fixed index annuities that can help to address these fears.
By introducing clients to new features such as interest-rate benchmark crediting, producers can launch a dialogue with their clients about the potential value of fixed index annuities in an uncertain market and interest rate environment. Such discussions can help these clients come off the sidelines and get back into the game, taking advantage of financial strategies that may give them greater momentum toward their long-term goals.
The Beacon Annuity Report:
Income and indexed annuity sales increase in Q3
Evanston, IL, November 30, 2011 -Third quarter 2011 income and indexed annuity sales topped the year-ago quarter according to estimates from the Beacon Research Fixed Annuity Premium Study. Income annuities advanced 5% to $2.2 billion, and indexed annuities inched up 0.4% to $9.0 billion. Indexed annuity sales were also up 7% from second quarter, while year-to-date income annuity results increased 3% to $6.3 billion.
"As we anticipated, these products continued to do well, despite the quarter's low interest rate environment, because of strong demand for guaranteed lifetime retirement income, be it the personal pension provided by income annuities or the lifetime withdrawal benefits offered by most indexed annuities," said Jeremy Alexander, CEO of Beacon Research.
Year-to-date 2011 sales fell 1% to $58.3 billion. Aside from the income annuity increase, there were small declines in indexed annuities (down 1% to $24.6 billion) and fixed rate non-MVAs (down 1% to $23.2 billion). Fixed rate MVA results dropped 15% to $4.2 billion.
Fixed annuity sales were $19.0 billion in third quarter, 7% below results in both the year-ago and prior quarters. Lower interest rates dampened sales of fixed rate annuities. Non-MVA sales of $6.5 billion fell 14% from a year ago and 21% from second quarter. MVAs posted $1.3 billion in sales, down 33% from third quarter 2010 and 15% from the prior quarter. Income annuity results declined 2% sequentially.
Estimated Sales by Product Type (in $ millions)
Each of third quarter's top five companies changed position from the prior quarter. Allianz regained sales leadership, moving Western National to second place. Both American Equity and Aviva moved up a notch to come in third and fourth, respectively. New York Life took fifth place. Third quarter results for the top five Study participants were as follows:
Total Fixed Annuity Sales (in thousands)
Allianz Life 1,614,004
Western National Life 1,342,074
American Equity 1,267,361
Aviva USA 1,259,723
New York Life 922,021
Pacific Life was the new MVA sales leader. The other top companies in sales by product type were unchanged from the prior quarter: indexed: Allianz, fixed rate non-MVA: Western National, and; income: New York Life.
MassMutual took the lead in sales through independent broker-dealers. The other distribution channel leaders were unchanged. Western National Beaconwas the leading bank channel carrier. New York Life led in captive agent and large/regional broker-dealer sales. USAA was the dominant direct/third party channel company. Allianz posted top independent producer sales. Pacific Life remained leader in wirehouses.
Each of third quarter's top five products were indexed annuities except for New York Life's Lifetime Income Annuity, which moved up one place to come in second. The Allianz MasterDex X remained the leading product. American Equity's Retirement Gold jumped two notches to come in third, followed by the company's Bonus Gold. Aviva rejoined the top five with Balanced Allocation Annuity 12 taking fifth place. The Study tracks the sales of some 600 fixed annuities.
Rank Company Name Product Name Product Type
1 Allianz Life MasterDex X Indexed
2 New York Life NYL Lifetime Income Annuity Income
3 American Equity Retirement Gold Indexed
4 American Equity Bonus Gold Indexed
5 Aviva Balanced Allocation Annuity 12 Indexed
"We expect fourth quarter sales to decline due to seasonality as well as the difficult interest rate environment," Alexander concluded. "Beyond that, results aren't likely to improve much until rates rise. But, as always, a lot will depend on the decisions of the companies that issue and distribute fixed annuities."
About the Beacon Research Fixed Annuity Premium Study
The quarterly Study is the first and only source to track and analyze product-level fixed annuity sales on an ongoing basis. Providing timely market intelligence of the highest quality, it's designed to report what’s moving in each channel and why.
About Beacon Research
Beacon Research tracks fixed, indexed and variable annuity sales, rates and features, and provides web-based systems at www.annuitynexus.com for distributors and insurance companies. Beacon also licenses information and software tools to other platforms, including EbixExchange's AnnuityNet annuity automation platform. Beacon's fixed annuity benchmark series -- the industry's first - is available through Ibbotson Associates. Directly and through strategic alliances, Beacon information can be accessed by hundreds of financial institutions and distributors.
Third Quarter Variable Annuity Product Changes Slow
But Benefits Trend Toward More Generous
Lifetime GMWB Benefits Garner More Than 60% of New Sales Flows
WASHINGTON, D.C. - The Insured Retirement Institute (IRI) today released a report on product trend updates within the U.S. variable annuity market. Compiled by Morningstar, the report found that variable annuity benefit activity for the third quarter slowed significantly from the robust filings made during the second quarter of this year. In the third quarter, carriers made 40 material changes, down from 162 changes in the second quarter, and down from 106 changes in the same quarter last year. The new filings focus heavily on new share classes and the Lifetime Guaranteed Minimum Withdrawal Benefit (GMWB) benefit, which traditionally garner about 64 percent of new sales flows.
"Second quarter filings are historically the highest of the year, with third quarter changes representing one of the slowest periods of activity, and this year is no exception," said IRI President and CEO Cathy Weatherford. "What has not slowed is the continued move toward increasingly generous benefits, a trend that developed in the months that followed the economic downturn and remains a focus of product development activity today. With variable annuity sales on pace to exceed $150 billion this year, it is clear that consumers are positively responding to the product innovation that has occurred by increasingly placing their trust in insured retirement strategies."
Despite the anticipated slowing of third quarter changes, more than one-third of the filings represented either a new variable annuity contract or a new variable annuity benefit. Carriers continue to experiment with new benefit design, with the trend toward more generous offerings. Benefit structures continued to be shaped to allow for risk control and segmentation of the target investor base. Contrary to the continued move to more robust benefits, variable annuity contract costs have remained steady. Total average expenses remain unchanged from 2010 levels, coming in at 2.49 percent, a figure that is consistent with the five-year average of also 2.49 percent.
The entire report and analysis can be found here.
LIMRA: Variable Annuity Sales
Experience Double-Digit Growth in the Third Quarter of 2011
Indexed and fixed immediate annuity sales match record levels
WINDSOR, Conn., Nov. 16, 2011 - For the second consecutive quarter, variable annuity (VA) sales improved 16 percent compared to the prior year, totaling $40.2 billion in the third quarter, according to LIMRA's third quarter 2011 U.S. Individual Annuities Sales survey, which represents data from 94 percent of the market.
"While third quarter VA sales were two percent lower than second quarter results, VAs performed significantly better than the market, which was down 15 percent," said Joseph Montminy, assistant vice president for LIMRA’s annuity research. "The equity markets in the third quarter were the most volatile we have experienced since the financial crisis began in late 2008, yet consumers’ demand for guaranteed lifetime income helped sustain VA sales."
VA sales have experienced six consecutive quarters of positive growth – the last three in double digits. In the third quarter, VA guaranteed living benefit (GLB) riders were elected 88 percent of the time, when a GLB was available at purchase. In the first nine months of 2011, VA sales jumped 18 percent, to reach $120.9 billion.
Total annuity sales hit $60.4 billion in the third quarter, an increase of eight percent compared to prior year. Year-to-date, annuity sales reached $182.8 billion, improving 11 percent from the first nine months of 2010.
Fixed annuity sales continued to struggle in the current low interest rate environment, falling six percent in the third quarter and down one percent for the first nine months of 2011. Total fixed annuity sales equaled $20.2 billion in the third quarter and $61.9 billion in the first nine months of 2011. With the Federal Reserve keeping interest rates low, we anticipate total fixed annuities will remain within this trading range for the next couple of years.
Indexed annuity sales in the third quarter matched the record level of $8.7 billion set in the third quarter of 2010, which is an increase of seven percent from the second quarter of 2011. In addition, indexed annuities captured 43 percent of the fixed annuity market, exceeding the more traditional fixed-rate annuity sales (book-value and market-value adjusted), which had 40 percent market share. LIMRA expects that indexed annuities will have a record year in 2011.
Immediate annuity sales matched the record sales of $2.2 billion set in the second quarter and were up 10 percent compared to prior year. "The demand for a guaranteed income stream outweighed the low interest rate environment," added Montminy. "We expect sales of fixed immediate annuities to set new records, exceeding $8 billion in 2011, and will continue to perform well as more of the Boomers without pensions approach retirement and need to create that monthly paycheck."
Book-value sales dropped seven percent in the third quarter, to reach $6.9 billion. This was a 19 percent decline from second quarter sales. For the first nine months of 2011, book-value sales rose two percent to $24.1 billion. Market-Value Adjusted (MVA) sales plummeted 33 percent in the third quarter, to $1.2 billion. Year to date, MVA sales have dropped 15 percent.
A list of the top 20 writers of overall total annuities, variable annuities and fixed annuities ranked by third quarter 2011 sales results, as well as the third quarter Annuities Industry Estimates Chart, can be found in the updated Data Bank.
About LIMRA
LIMRA is a worldwide research, consulting and professional development organization that helps more than 850 insurance and financial services companies in 73 countries increase their marketing and distribution effectiveness. Visit LIMRA at www.limra.com.
New Product Profile
The Hartford Enhances Its Variable Annuity
To Help Consumers Achieve Both 'Living and Giving' Goals
The Hartford's Personal Retirement Manager product suite can now help provide
lifetime income without reducing the death benefit, preserving a legacy for family or charity
Simsbury, Conn., Nov. 16, 2011 - Retirees who need to invest for lifetime income but also want to preserve a financial legacy for loved ones or a favorite charity can now accomplish both through Hartford's Personal Retirement Manager (PRM) Variable Annuity product suite.
"Many people have found it difficult to accomplish the opposing financial objectives of generating a lifetime income and leaving a legacy through a variable annuity," said Steve Kluever, vice president of product and marketing for Global Annuities at The Hartford. "Hartford's PRM offers options to help resolve this conflict and allow consumers to achieve both living and giving goals, without detracting from either."
The Hartford's new Future6 Death Benefit, available as an optional rider on PRM, allows for income withdrawals that do not reduce the death benefit, unlike most variable annuity death benefits, Kluever explained. The value of the death benefit is based on the greater of premiums invested or the contract value at the time income payments start, providing the withdrawals do not exceed predetermined limits, he said.
The Future6 Death Benefit is available when the optional Future6 Guaranteed Minimum Withdrawal Benefit (GMWB) is also elected. Future6 provides guaranteed growth of a future lifetime income stream through the greater of a 6 percent annual deferral bonus or market appreciation step-up. The bonus lasts for up to 10 years while investors delay taking income payments. Performance step-ups are available until age 90, even while taking income.
Investors who elect the Future6 GMWB are required to allocate their investment in the Personal Protection Portfolios, which are asset allocation models that provide access to a dozen world-class investment managers and help reduce the volatility of an investment portfolio through various market environments.
As part of the enhancements, The Hartford is also reducing certain expenses associated with PRM. The Hartford is a leader in the annuities marketplace in terms of assets under management, with $78.4 billion in the United States as of Sept. 30, 2011.
"This enhancement to PRM represents the next step in broadening our product portfolio, and demonstrates The Hartford's commitment to the annuity marketplace," said Rob Arena, head of Global Annuities for The Hartford. "We see a growing need for retirement savings and income products and we believe in the power of annuities to meet those needs as America ages."
About The Hartford
The Hartford Financial Services Group Inc. (NYSE: HIG) is a leading provider of insurance and wealth management services for millions of consumers and businesses worldwide. The Hartford is consistently recognized for its superior service and as one of the world's most ethical companies. More information on the company and its financial performance is available at www.thehartford.com. Join us on Facebook at www.facebook.com/TheHartford. Follow us on Twitter at www.twitter.com/TheHartford.
Industry Wide Annuity Sales Climb From 2010 Levels
VA Sales on Pace to Exceed $150 Billion for 2011; Indexed Capture Nearly Half of Fixed Market
WASHINGTON, D.C. - The Insured Retirement Institute (IRI) today announced preliminary third quarter results for the United States annuity industry. Annuity sales for the third quarter continue to increase, outpacing levels from the same time period last year. Third quarter industry wide sales were $57 billion, up 5 percent from third quarter 2010 sales of $54.8 billion. Compared to second quarter sales of $60.3 billion, third quarter sales were down 6 percent.
"As annuity sales continue to outpace the impressive benchmarks established last year, this year is truly poised to be a historic one for the industry," said IRI President and CEO Cathy Weatherford. "With variable annuity sales growing this quarter by more than $2 billion, and fixed annuities maintaining a strong footing in the market, it is evident that risk adverse investors are turning to these guarantees now more than ever. With this in mind, it is likely that 2011 will be the turning point for the industry, with sales reaching pre-crisis levels."
Fixed annuity sales for the third quarter were $17.9 billion, down from $20.4 billion in the previous quarter, representing a 12.3 percent decrease. Year-to-year quarterly sales of fixed annuities were down 12.7 percent, with the third quarter of 2010 coming in at $20.5 billion. Year-to-date fixed annuity sales were $57.2 billion, 2.7 percent below $58.8 billion in 2010.
"Despite record-low interest rates, year-to-date fixed annuity sales have held up quite well," said Beacon Research President Jeremy Alexander. "The ongoing demand for guaranteed lifetime retirement income is evident in the year-to-date growth of income annuity sales. This demand also drove the sequential increase for indexed annuities, most of which offer lifetime income features."
Variable annuity sales for the third quarter were $39.1 billion, down 2 percent from $39.9 billion in the previous quarter. Year-to-year quarterly sales of variable annuities posted a 14 percent increase from third quarter 2010 sales of $34.3 billion. Year-to-date variable annuity sales were $118.1 billion, 17 percent above $100.7 billion in 2010.
"Up significantly from year-ago levels, third quarter variable annuity sales of $39.1 billion put the industry on track this year to exceed $150 billion in sales for the first time since 2008,"said Morningstar Director of Insurance Solutions Frank O’Connor.
Portfolios that Include
Guaranteed Retirement Income Streams Poised for Greater Success
Variable Annuities Provide Advisors Flexibility to Create Retirement Income for Clients
WASHINGTON, D.C. - The Insured Retirement Institute (IRI) last week released key findings of the 2011 Portfolio Construction Dynamics report, in partnership with Cerulli Associates, that explores the challenges advisors face in generating income throughout their clients' retirement. Dedicating a portion of a client's systematic withdrawal or income floor to a guaranteed income stream increases their chances of success of the overall portfolio, according to the report.
The report also offers insight on how to grow advisor acceptance of variable annuities as a retirement income solution, and recognizes the growth of the fee-based pricing model used by independent broker/dealer and advisor account managers.
"IRI research shows that the number one retirement savings concern among Boomers is that they will outlive the funds they have accumulated for retirement," said IRI President and CEO Cathy Weatherford. "Insured retirement strategies can help provide the security Boomers are looking to provide dependable, guaranteed income throughout their retirement. And based on the findings of this recent report, advisors looking to diversify their clients' portfolios should consider variable annuities as a baseline income investment in their clients' retirement plan. As a portfolio foundation, insured retirement strategies can provide advisors flexibility to meet the unique needs of their clients."
The report also found that:
- Independent and insurance broker/dealers are the strongest sales channels for variable annuities.
- Advisors anticipate changes to their practice as a result of the increased need to aid clients in generating retirement income.
- Advisors expect an increase in the number of clients and revenue, as well as the need to use a broader range of investment vehicles to meet retirement income goals.
- Advisors are continuing to move to more widespread use of managed products.
The key findings and analysis can be found here
About the Insured Retirement Institute: The Insured Retirement Institute (IRI) is a not-for-profit organization that for twenty years has been a mainstay of service, commitment and collaboration within the insured retirement industry. Today, IRI is considered to be the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI proudly leads a national consumer education coalition of nearly twenty organizations and is the only association that represents the entire supply chain of insured retirement strategies: our members are the major insurers, asset managers, broker dealers and more than 75,000 financial professionals. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI's mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policy makers on critical issues affecting insured retirement strategies and the consumers that rely on their guarantees. Visit www.IRIonline.org today to experience the vast resources of the Insured Retirement Institute for yourself.
Over A Third of Retirees Receive Income from Annuities
Still, annuities currently account for only 4% of retiree income; But this will change dramatically
WINDSOR, Conn., Sept. 16, 2011- According to a recent LIMRA study, 35 percent of all retirees receives income from an annuity in retirement.
"The majority of current retirees relies primarily on pensions and social security to meet their daily expenses, with annuities making up only four percent of their income," noted Jafor Iqbal, associate managing director, LIMRA Retirement Research. "But in the coming years, we expect to see fewer Americans retiring with pensions and more relying on their personal savings to fund their retirement. Annuities will provide a reliable way to convert that savings into a guaranteed income stream."
LIMRA found that the likelihood of taking income from an annuity increases with age. Only 19 percent of retirees under age 65 receive income from an annuity but the number jumps to 49 percent when looking at retirees age 75-79.
Interestingly, household income has little effect on whether retirees receive income from an annuity. About a third of retired households with incomes under $75,000 rely on income from an annuity; the retired households with incomes of more than $75,000 increased about five percentage points.
Household assets are another story. Retirees with household assets under $100,000 are about half as likely to receive income from an annuity (22%) as those with assets of $250,000 to $499,000 (45%). About 4 in 10 retired households with assets above $500,000 receive income from an annuity.
Only one-fifth of retirees who are receiving income from an annuity say they have received it from an immediate annuity. The study found that all other annuity income recipients are taking withdrawals from their deferred annuities.
"All of our research has revealed that consumers are attracted to guarantees with their financial products - especially when the economy is performing poorly," said Iqbal. "This hold true for retirees as well. Our study found that 40 percent of retirees receiving income from annuities say their annuity income is guaranteed for life."
The online survey was conducted in October 2010. Qualified respondents were aged 55 to 79; had been retired for at least one year and had not worked for pay within the past year; and had household incomes of at least $35,000. Furthermore, qualified respondents were personally involved in making decisions about their household savings and investments.
IRI Calls on Super Committee to protect access
to retirement savings strategies for Millions of Americans
Tax Deferral of Annuity Earnings is of Greatest Benefit to Middle Income Americans
WASHINGTON, D.C. - The Insured Retirement Institute (IRI) today called on the Joint Deficit Reduction Committee to protect access to retirement savings strategies for the millions of Americans who rely on insured retirement strategies, and other retirement savings plans, to help secure their financial future.
IRI research has found that the largest holders of annuities are middle-class Americans, with eight out of 10 annuity investors earning less than $100K, and 64 percent earning less than $75,000. In addition, according to research by the Employee Benefits Research Institute (EBRI), half of all workers (50 percent) cite low confidence in having enough money to live comfortably throughout their retirement years, with 46 percent of all workers reporting that they have less than $10,000 in savings. As a result, in the absence of tax deferral, hard-working middle income Americans would be faced with potentially burdensome restrictions to access insured retirement solutions.
"IRI applauds the goals of deficit reduction included in the Budget Control Act of 2011 and the establishment of the Joint Deficit Reduction Committee," said IRI President and CEO Cathy Weatherford. "However, while the Committee is going to have to make a number of hard decisions, we do not believe that deficit reduction should be done at the cost of individual retirement savings. Today more than ever, consumers are being asked to shoulder the financial responsibilities of their retirement. As the panel considers deficit reduction options, we urge committee members to protect savings incentives for all American workers."
IRI's The Tax Advantages of Annuities report also found that:
-The deferral of taxes on the inside buildup of annuity contracts is a key selling point for advisors and investors, as noted by 37% of advisors and 56% of annuity owners.
- The removal of the tax deferred status of annuities would not necessarily increase the tax revenue generated by the products. Yet it might result in the reduced use of annuities among the population that has come to rely on them most, the middle class.
There is a strong tie-in between tax deferral and retirement income, as the removal of tax deferral would require investors to tap other personal assets to pay for taxes on the annual build-up within the annuity, resulting in a lower level of funds available for retirement.
The tax-deferred treatment of the inside build-up within an annuity can amount to a significant sum over a period of many years, often resulting in a higher level of savings available at retirement compared to a similar investment that incurs income taxation every year
The full findings of IRI's The Tax Benefits of Annuities can be found here
About the Insured Retirement Institute
The Insured Retirement Institute (IRI) is a not-for-profit organization that for twenty years has been a mainstay of service, commitment and collaboration within the insured retirement industry. Today, IRI is considered to be the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI proudly leads a national consumer education coalition of nearly twenty organizations and is the only association that represents the entire supply chain of insured retirement strategies: our members are the major insurers, asset managers, broker dealers and more than 75,000 financial professionals. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI's mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policy makers on critical issues affecting insured retirement strategies and the consumers that rely on their guarantees. Visit www.IRIonline.org today to experience the vast resources of the Insured Retirement Institute for yourself.
VA Benefit Activity Triples in Second Quarter
Product Innovation Continues At a Brisk Pace; Year to Year New Sales Soar 23 Percent
WASHINGTON, D.C. - The Insured Retirement Institute (IRI) today released a report on product trend updates within the U.S. variable annuity market. Compiled by Morningstar, the report found that variable annuity benefit activity nearly tripled in the second quarter with the filing of 30 new benefits over the previous quarter filings of 11 new benefits. While the Lifetime Guaranteed Minimum Withdrawal Benefit (GMWB) continues to dominate the marketplace, a few Guaranteed Minimum Accumulation Benefits (GMAB) made a return, and a major carrier made enhancements to its Guaranteed Minimum Income Benefit (GMIB). Of note, 17 of the 23 living benefits released in the second quarter were designed as lifetime withdrawal riders.
Overall, carriers significantly expanded their product development activity in the second quarter. There were 162 changes in the quarter, compared to 49 in the previous quarter, representing an increase of 226 percent. Year to year comparisons also posted a notable increase, rising 110 percent from second quarter 2010 levels of 77 changes. Product filings were spread among 24 carriers, with 16 choosing to issue new contracts or benefits. Despite the notable expansion in product innovation this year, variable annuity contract costs have remained constant. Total average expenses were 2.48 percent compared to 2.49 percent in 2010, a figure that is consistent with the five-year average of 2.49 percent.
"The upward trajectory of new variable annuity sales that propelled the industry into record territory has continued in earnest this year as product innovation made notable strides," said IRI President and CEO Cathy Weatherford. "This historic growth attests not only to the unparalleled strength of the industry, but also to the financial security that only these strategies can bring to the millions of consumers who are planning for their retirement. Given the extensive development of living benefits, and contract fees remaining low, we will likely see an expanded reliance on guaranteed lifetime income strategies by investors in the second half of the year."
New variable annuity sales continued to climb, reaching $38.7 billion, up 23.2 percent over first quarter 2010 sales of $31.4 billion. (First quarter 2011 flow data is the most current data available.) First quarter sales were also 4.3 percent higher than fourth quarter 2010 sales of $37.1 billion. In addition, assets under management posted another all time high of $1.56 trillion, a 3.6 percent increase over year-end assets of $1.50 trillion.
The entire report and analysis can be found here.
About the Insured Retirement Institute
The Insured Retirement Institute (IRI) is a not-for-profit organization that for twenty years has been a mainstay of service, commitment and collaboration within the insured retirement industry. Today, IRI is considered to be the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI proudly leads a national consumer education coalition of nearly twenty organizations and is the only association that represents the entire supply chain of insured retirement strategies: our members are the major insurers, asset managers, broker dealers and more than 75,000 financial professionals. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI’s mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policy makers on critical issues affecting insured retirement strategies and the consumers that rely on their guarantees. Visit www.IRIonline.org today to experience the vast resources of the Insured Retirement Institute for yourself.
The Hartford Expands Into Structured Settlement Annuity Market
Fixed annuity provides tax-free payouts related to legal claims
Simsbury, Conn., Aug. 23, 2011 - The Hartford is re-entering the structured settlement annuity market as part of an ongoing strategy to grow its annuity business, the company announced.
"Building our annuity business is an important part of our Wealth Management strategy, and we are committed to rejuvenating our market position through new products and expanded distribution," said David Levenson, president of Wealth Management at The Hartford.
The Hartford's Structured Settlement Fixed Annuity, issued by Hartford Life Insurance Co., provides tax-free payouts to people who receive settlements related to a workers' compensation or personal injury claim. The periodic payments deliver dependable, regular income and are tailored to meet the future needs of the recipient.
"The structured settlement market is a growth opportunity for us and represents the next step in our re-emergence in annuities," said Rob Arena, head of annuities for The Hartford’s Wealth Management unit. "We have the financial strength, the expertise, the distribution relationships and the right product to be successful in the structured settlement market."
The Hartford also offers medical underwriting for structured settlements, a capability that not all carriers are able to provide. Because structured settlement recipients sometimes have accident-related injuries that can reduce their life expectancy, medical underwriting can potentially increase their periodic payments.
"One of the most important considerations for recipients of structured settlements is the financial stability and strength of the insurance company that stands behind their annuity," Arena said. "The Hartford is a company they can have confidence in to be there for as long as their settlement calls for income."
About The Hartford
The Hartford has an 'A' financial strength rating from A.M. Best, which is considered 'excellent.'
The Hartford, a leader in the annuity market, had $7.6 billion in assets under management (AUM) related to structured settlement annuities and $91.3 billion in total annuity AUM as of June 30, 2011.
The Hartford Financial Services Group Inc. (NYSE: HIG) is a leading provider of insurance and wealth management services for millions of consumers and businesses worldwide. The Hartford is consistently recognized for its superior service and as one of the world's most ethical companies. More information on the company and its financial performance is available at www.thehartford.com. Join us on Facebook at www.facebook.com/TheHartford. Follow us on Twitter at www.twitter.com/TheHartford.
Fixed annuity sales rise again despite lower rates
Indexed cap rate trended lower, but still looked good
Evanston, IL, August 25, 2011—Second quarter 2011 fixed annuity sales overcame falling interest rates to post their second consecutive quarter-to-quarter increase. Results improved 8% from the prior quarter to $20.4 billion, according to the Beacon Research Fixed Annuity Premium Study. There was growth in all but one product type. Income annuities advanced 30% to $2.3 billion. Indexed annuities grew 18% to $8.4 billion. Fixed rate MVAs rose 4% to $1.5 billion. Fixed rate non-MVAs fell 5% to $8.2 billion.
"We anticipated the sequential growth in both indexed and income annuities," said Jeremy Alexander, CEO of Beacon Research. "Indexed annuity cap rates trended lower, but still looked good compared to the quarter’s declining fixed rates on annuities and CDs. Their guaranteed lifetime income benefits were especially attractive during a time of reduced consumer confidence. The secure personal pensions provided by income annuities were appealing for the same reason. We also expected falling interest rates to dampen sales of both fixed rate annuity types. But yield-seeking purchasers apparently appreciated the somewhat higher rates offered by MVAs."
Year-to-date 2011 sales increased 3% to $39.3 billion from first half 2010. Growth in fixed rate non-MVAs (8% to $16.8 billion) and income annuities (2% to $4.0 billion) more than compensated for declines in fixed rate MVAs (- 4% to $3.0 billion) and indexed annuities (-1% to $15.6 billion).
Sales were flat compared to second quarter 2010. Improvements in fixed rate non-MVAs (up 4%) and income annuities (up 3%) were balanced by fixed rate MVA and indexed annuity declines of 12% and 2%, respectively.
Western National was again the quarter’s sales leader. Allianz and New York Life traded places, with Allianz in second place and New York Life coming in third. American Equity and Aviva continued in fourth and fifth place, respectively. Second quarter results for the top five Study participants were as follows:
Total Fixed Annuity Sales (in thousands)
Western National Life 2,038,024
Allianz Life 1,871,993
New York Life 1,671,889
American Equity Investment 1,108,799
Aviva USA 1,078,332
In sales by product type, the top companies were unchanged from the prior quarter: Fixed rate MVA -American National; Fixed rate non-MVA - Western National; Indexed - Allianz, and; Income -New York Life.
Security Benefit Life was the new leader in sales through independent broker-dealers and Pacific Life took the lead in wirehouses.
The other top companies by distribution channel were unchanged. Western National was the dominant bank channel carrier. Allianz was tops among independent producers. New York Life led in captive agent and large/regional broker-dealer sales. USAA was the leading direct/third party channel company.
Among more than 600 products tracked by the Study, two channel leaders’ annuities placed in the top five as well. Products from Allianz and New York Life traded places, with the Allianz MasterDex X regaining bestseller status and the New York Life Secure Term Fixed Annuity coming in second. New York Life’s Lifetime Income Annuity moved up a notch to take third place. Lincoln Financial Group rejoined the top five with Lincoln New Directions in fourth place. American Equity’s Retirement Gold moved down two notches to come in fifth.
Rank Company Name Product Name Product Type
1 Allianz Life MasterDex X Indexed
2 New York Life NYL Secure Term Fixed Annuity Fixed Rate Non-MVA
3 New York Life NYL Lifetime Income Annuity Income
4 Lincoln Financial Group Lincoln New Directions Indexed
5 American Equity Retirement Gold Indexed
ING's Secure Index 7 became the top independent broker-dealer product, and Pacific Life's Pacific Frontiers II was the new wirehouse bestseller. One of Western National's proprietary bank products replaced the company's Flex 7 as the leading bank channel fixed annuity. The remaining top products by channel were unchanged from the prior quarter.
Channel Company Product Product Type
Banks and S&Ls Western National Proprietary Bank Product A Fixed Rate Non-MVA
Captive Agents New York Life Lifetime Income Annuity Income
Direct/Third Party USAA Flex. Retirement Annuity Fixed Rate
Ind. Broker-Dealers ING Secure Index 7 Indexed
Independent Producers Allianz Life MasterDex X Indexed
Large/Reg. BDs New York Life NYL Secure Term Fixed Annuity Fixed Rate Non-MVA
Wirehouses Pacific Life Pacific Frontiers II Fixed Rate MVA
"Looking ahead, we believe that indexed and income annuities will continue to do well. The outlook for fixed rate annuities is more uncertain. Sales may benefit from the continued flight to safety and wider credit spreads or decline due to very low credited rates," Alexander concluded.
About the Beacon Research Fixed Annuity Premium Study
The quarterly Study is the first and only source to track and analyze product-level fixed annuity sales on an ongoing basis. Providing timely market intelligence of the highest quality, it’s designed to report what's moving in each channel and why.
About Beacon Research
Beacon Research tracks fixed, indexed and variable annuity sales, rates and features, and provides web-based systems at www.annuitynexus.com for distributors and insurance companies. Beacon also licenses information and software tools to other platforms, including EbixExchange's AnnuityNet annuity automation platform. Beacon's fixed annuity benchmark series- the industry's first - is available through Ibbotson Associates. Directly and through strategic alliances, Beacon information can be accessed by hundreds of financial institutions and distributors.
Contact: Judith Alexander, 847.864.5447, judith@beaconresearch.net
MVAs or market value adjustments pay a premium on withdrawals when interest rates fall and reduce withdrawals when rates rise. Fixed rate non-MVAs are also known as book value annuities.
Industry Wide Annuity Sales Continue Double Digit Climb
VA Sales Up for 3rd Consecutive Quarter; Fixed Sales Rise Over Q1
WASHINGTON, D.C. The Insured Retirement Institute (IRI) today announced second quarter results for the United States annuity industry. Annuity sales for the second quarter continued to increase at a double-digit rate. Second quarter industry wide sales were $60.4 billion, up 10 percent from $55 billion in the second quarter of 2010. Second quarter sales also garnered quarter-to-quarter growth, increasing at a rate of 4 percent from $58.1 billion in the first quarter of this year.
"The second quarter data definitively show that this year will indeed be a record setting one for the industry," said IRI President and CEO Cathy Weatherford. "This expansive growth not only demonstrates the growing interest in insured retirement strategies, but also reflects the long-term confidence that investors are increasingly placing in these products."
Fixed annuity sales for the second quarter were $20.4 billion, up from $18.9 billion in the previous quarter, representing a 7.9 percent increase. Year-to-year quarterly sales of fixed annuities remained flat, with the second quarter of 2010 also coming in at $20.4 billion. Qualified sales were 32% of the second quarter 2011 total.
"The resiliency of second quarter's fixed annuity sales is remarkable, given that interest rates were below those of the year-ago or prior quarters," said Beacon Research President and CEO Jeremy Alexander. "Though rates have continued to decline, there has been a general flight to safety that may make third quarter another strong one for fixed annuities."
Variable annuity sales for the first quarter were $40 billion, up 2 percent from $39.2 in the previous quarter. Year-to-year quarterly sales of variable annuities posted a 15 percent increase from second quarter 2010 sales of $34.6 billion. Second quarter 2010 net sales were $3.2 billion. There were $26.6 billion in qualified sales and $13.4 billion in non-qualified in the second quarter.
"Variable annuity sales continued to trend upward, reaching the highest level since the second quarter of 2008 as continued concern about the direction of the economy and heightened market volatility appear not to have dampened investor enthusiasm for guarantees," said Morningstar Director of Insurance Solutions Frank OConnor.
For additional data reporting, please access the PDF through the link here.
About the Insured Retirement Institute
The Insured Retirement Institute (IRI) is a not-for-profit organization that for twenty years has been a mainstay of service, commitment and collaboration within the insured retirement industry. Today, IRI is considered to be the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI proudly leads a national consumer education coalition of nearly twenty organizations and is the only association that represents the entire supply chain of insured retirement strategies: our members are the major insurers, asset managers, broker dealers and more than 75,000 financial professionals. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI's mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policy makers on critical issues affecting insured retirement strategies and the consumers that rely on their guarantees. Visit www.IRIonline.org today to experience the vast resources of the Insured Retirement Institute for yourself.
About Beacon Research
Beacon Research is an independent research company and application service provider founded in 1997 and based in Evanston, IL. Beacon tracks fixed and variable annuity features, rates and sales. Its quarterly Fixed Annuity Premium Study is the first and only source to analyze fixed annuity sales at the product level. Beacon lowers compliance risk and increases fixed annuity sales with 100% carrier-approved, comprehensive product profiles, spreadsheets and search tools for the advisor/rep websites of banks, TPMs, broker-dealers and marketing organizations. Financial institutions use its systems at www.annuitynexus.com for compliance review of 1035 exchanges, sales support, conservation and product research. Beacon also licenses information to other platforms, including Insurance Technologies VisibleChoiceâ„¢ annuity sales platform, Ebix, Lipper, and Ibbotson Associates. Directly and through strategic alliances, Beacon information can be accessed by hundreds of financial institutions and thousands of advisors.
About Morningstar, Inc.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar provides data on approximately 350,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 4 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. The company has operations in 20 countries and minority ownership positions in companies based in two other countries.
New and Innovative IRI/RegEd Annuity Training Platform
Features Provide Valuable State Reciprocity Calculations
Enhancements include the ATP to Accept Completion Data from Other Training Vendors
WASHINGTON, D.C. -The Insured Retirement Institute (IRI) and RegEd has announced significant enhancements to their Annuities Training Platform (ATP). As a direct result of input from more than 30,000 users, in 18 states, the ATP now features valuable real-time state reciprocity calculations and confirmations through an easy-to-navigate interface for users. In addition, the ATP can now accept completion data from other training vendors.
The ATP is designed to be a dynamic interface, one that can both adapt to the varying needs of its users, while adapting to any regulatory changes that may arise. The ATP provides a one-stop national portal for financial advisors and producers to see and take all required courses, including company specific courses, and provides confirmation that resident state requirements have been met. The new enhancements to the ATP allow the system to determine applicable state annuity training requirements for each financial advisor for all states, and then apply the annuities training course completion(s) to these multi-state requirements. In addition to providing financial advisors, producers, carriers and distributors the ability to view an individual’s real-time compliance with multiple state regulations, the system now allows them to apply a single course completion to meet multiple state requirements. Participating carriers and distributors can utilize reports and exports to receive data on their entire financial advisor/producer population.
"With this release, we have made complex requirements simple. Working with our Client Advisory Board of top carriers, we have invested substantially to create the only compliance engine that can deliver the complex calculations required to ensure that producers satisfy their requirements," said John M. Schobel, Chief Executive Officer of RegEd. "New annuities training regulations are incredibly challenging. We continue to maintain our focus on carrier compliance and ease of use for their producers. Allowing independent agents to satisfy their requirements – easily and for multiple carriers - makes sense."
"Throughout the development of our platform our overriding goal was to create a seamless user experience that was efficient, compliant and easy to use," said IRI President and CEO Cathy Weatherford. "By incorporating user feedback to develop this new feature, we have been able to strengthen the unique value proposition that only our platform brings to the marketplace. As the industry preferred solution of choice, our ATP will continue to evolve to meet the changing needs of our valued and expanding client base."
Since its launch in November 2010, RegEd and IRI have welcomed more than 25 carriers and thousands of producers to the ATP platform. RegEd plans to continue to release several new ATP features to further enhance the producer, carrier and distributor experience.
About the Insured Retirement Institute
The Insured Retirement Institute (IRI) is a not-for-profit organization that for twenty years has been a mainstay of service, commitment and collaboration within the insured retirement industry. Today, IRI is considered to be the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI proudly leads a national consumer education coalition of nearly twenty organizations and is the only association that represents the entire supply chain of insured retirement strategies: our members are the major insurers, asset managers, broker dealers and more than 75,000 financial professionals. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI's mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policy makers on critical issues affecting insured retirement strategies and the consumers that rely on their guarantees. Visit www.IRIonline.org today to experience the vast resources of the Insured Retirement Institute for yourself.
Q2 Variable Annuity sales climb in 2011
A strong 20% for the first half of the year; see the top 20
WINDSOR, Conn., Aug. 18, 2011 - Variable annuity (VA) sales jumped 16 percent in the second quarter when compared to the prior year, to reach $40.9 billion, according to LIMRA's second quarter 2011 U.S. Individual Annuities Sales survey.
"Variable annuity sales grew 20 percent in the first half of 2011, reaching $80.7 billion," said Joseph Montminy, LIMRA assistant vice president, annuity research. "Recent market volatility will certainly affect third quarter VA sales but consumer demand for guaranteed income protection will continue to drive sales of VAs with guaranteed living benefit (GLB) riders. Eight-seven percent of new VA sales elected a GLB rider (when available at purchase) in the second quarter of 2011."
Total annuity sales hit $62.4 billion in the second quarter, an increase of nine percent compared to prior year. Year-to-date, annuity sales reached $122.4 billion, improving 13 percent from the first six months of 2010. For the fifth quarter in a row, VA sales have improved, boosting overall annuity sales.
Fixed annuity sales continue to struggle in the current low interest rate environment, falling one percent in the second quarter compared to prior year. However, at $21.5 billion, fixed annuity sales grew six percent compared to the first quarter of 2011. In the first half of 2011, total fixed annuity sales grew one percent over prior year, reaching $41.7 billion.
After a strong first quarter, book-value sales recorded a slim one percent increase to $8.5 billion in the second quarter of 2011 compared to the second quarter of 2010. Year-to-date, book-value sales grew six percent, to reach $17.2 billion.
Market-Value Adjusted (MVA) sales declined in the second quarter of 2011, down 13 percent to $1.4 billion when compared to prior year. Year to date, MVA sales dropped three percent, totaling $2.8 billion.
While indexed annuity sales declined one percent in the second quarter of 2011 when compared to prior year, sales increased 14 percent from the first quarter of 2011, to reach $8.1 billion. This brings indexed annuity sales close to the record levels experienced in 2010.
Immediate annuities posted record sales results in the second quarter, up five percent compared to prior year and 22 percent from prior quarter, to reach $2.2 billion.
A list of the top 20 writers of overall total annuities, variable annuities and fixed annuities ranked by second quarter 2011 sales results, as well as the second quarter Annuities Industry Estimates Chart, can be found in the updated Data Bank.
VA Benefit Activity Triples in Second Quarter
Product Innovation Continues At a Brisk Pace; Year to Year New Sales Soar 23 Percent
WASHINGTON, D.C. - The Insured Retirement Institute (IRI) has released a report on product trend updates within the U.S. variable annuity market. Compiled by Morningstar, the report found that variable annuity benefit activity nearly tripled in the second quarter with the filing of 30 new benefits over the previous quarter filings of 11 new benefits. While the Lifetime Guaranteed Minimum Withdrawal Benefit (GMWB) continues to dominate the marketplace, a few Guaranteed Minimum Accumulation Benefits (GMAB) made a return, and a major carrier made enhancements to its Guaranteed Minimum Income Benefit (GMIB). Of note, 17 of the 23 living benefits released in the second quarter were designed as lifetime withdrawal riders.
Overall, carriers significantly expanded their product development activity in the second quarter. There were 162 changes in the quarter, compared to 49 in the previous quarter, representing an increase of 226 percent. Year to year comparisons also posted a notable increase, rising 110 percent from second quarter 2010 levels of 77 changes. Product filings were spread among 24 carriers, with 16 choosing to issue new contracts or benefits. Despite the notable expansion in product innovation this year, variable annuity contract costs have remained constant. Total average expenses were 2.48 percent compared to 2.49 percent in 2010, a figure that is consistent with the five-year average of 2.49 percent.
"The upward trajectory of new variable annuity sales that propelled the industry into record territory has continued in earnest this year as product innovation made notable strides," said IRI President and CEO Cathy Weatherford. "This historic growth attests not only to the unparalleled strength of the industry, but also to the financial security that only these strategies can bring to the millions of consumers who are planning for their retirement. Given the extensive development of living benefits, and contract fees remaining low, we will likely see an expanded reliance on guaranteed lifetime income strategies by investors in the second half of the year."
New variable annuity sales continued to climb, reaching $38.7 billion, up 23.2 percent over first quarter 2010 sales of $31.4 billion. (First quarter 2011 flow data is the most current data available.) First quarter sales were also 4.3 percent higher than fourth quarter 2010 sales of $37.1 billion. In addition, assets under management posted another all time high of $1.56 trillion, a 3.6 percent increase over year-end assets of $1.50 trillion.
The entire report and analysis can be found here.
About the Insured Retirement Institute
The Insured Retirement Institute (IRI) is a not-for-profit organization that for twenty years has been a mainstay of service, commitment and collaboration within the insured retirement industry. Today, IRI is considered to be the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI proudly leads a national consumer education coalition of nearly twenty organizations and is the only association that represents the entire supply chain of insured retirement strategies: our members are the major insurers, asset managers, broker dealers and more than 75,000 financial professionals. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI’s mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policy makers on critical issues affecting insured retirement strategies and the consumers that rely on their guarantees. Visit www.IRIonline.org today to experience the vast resources of the Insured Retirement Institute for yourself.
AnnuitySpecs.com Releases Second Quarter, 2011 Indexed Sales Results
Sale down only 1% compared to 2010
Thirty-nine indexed annuity carriers participated in the 56th edition of AnnuitySpecs.com Indexed Sales & Market Report, representing 98% of indexed annuity production. Total second quarter sales were $8.2 billion, up nearly 16% from the previous quarter. As compared to the same period last year, sales were down just over 1%. "Not surprising that this was one of the top-five best-selling quarters for indexed annuity sales," said Sheryl J. Moore, President and CEO of AnnuitySpecs.com. "The rates on indexed annuities are miserable right now, just as they are with every other type of fixed money instrument. However, the retirement income story that is told by the indexed annuity continues to be a compelling testimony to the power of guaranteed lifetime income."
Worth noting this quarter was the fact that Allianz Life maintained their position as the #1 carrier in the market with a 21% market share. Aviva took the position as the second-ranked company in the market, while American Equity, Great American (GAFRI) and North American rounded-out the top five, respectively. Allianz Life’s MasterDex X was the #1 selling indexed annuity for the ninth consecutive quarter.
For indexed life sales, 37 insurance carriers in the market participated in the AnnuitySpecs.com's Indexed Sales & Market Report, representing over 99% of production. Second quarter sales were $224,1 million, an increase of over 17% over the previous quarter. As compared to the same period in 2010, sales were up over 35%. Moore remarked, "I have been lecturing about the growing popularity of indexed life for 12 years now. It is nice to see that I am finally catching the attention of folks outside of the indexed life market!" She went on to comment, "I have several companies developing indexed UL, despite the fact that they had previously ordered their distribution not to sell indexed products. It hard for these companies to deny the consumer’s demand for indexed life when it is hitting record-setting sales levels every other quarter."
Items of interest in the indexed life market this quarter include Aviva recapturing the #1 position in indexed life with a 13% market share. Minnesota Life took the position as second-ranked company in the market, while AXA Equitable, Pacific Life Companies, and AEGON Companies rounded-out the top five, respectively. AXA Equitable's Athena Indexed UL took the position as the top-selling indexed life product for the first time this quarter.
For more information go to www.IndexedAnnuityNerd.com.
The staff at AnnuitySpecs.com and LifeSpecs.com have over a decade of experience working with indexed insurance products. They provide services in speaking, research, training, product development, and marketing of indexed life and indexed annuities. Their knowledge in product filing research and policy forms analysis gives them the expertise to provide competitive intelligence that allows carriers to stay ahead of their competition.
Sheryl J. Moore is president and CEO of this specialized third-party market research firm and the guiding force behind the industry's most comprehensive indexed life and indexed annuity due diligence tools, AnnuitySpecs.com and LifeSpecs.com. Ms. Moore previously worked as market research analyst for top carriers in the indexed life and annuity industries. Her views on the direction on the indexed market are frequently heard in seminars and quoted by industry trade journals. She is the author of the quarterly AnnuitySpecs.com's Indexed Sales & Market Report.
American General Life Companies Announces Annuity Living Benefit
AG Lifetime Income Builder
HOUSTON -August 10, 2011- American General Life Companies (American General) announces AG Lifetime Income Builder, a new living benefit rider available on selected fixed index annuity contracts and available to those age 55 and older. Structured to provide future guaranteed lifetime income, the rider features a an income base that is guaranteed to grow at no less than six percent compounded annually for up 20 years, and a guaranteed lifetime income stream guaranteed to grow at no less than two percent per year if the income base is allowed to accumulate for at least 10 years and no excess withdrawals are taken. Both of these features can help offset the erosive impact of inflation over the long term.
"We developed AG Lifetime Income Builder to meet the growing need for insured retirement income solutions in the post-financial crisis world," said Jay Drucker, vice president and annuity line business leader. "In fact, according to the recently released SunAmerica Retirement Re-Set Study, 60% of Americans age 55 and older seek guaranteed retirement income that is protected from market loss. This rider helps answer that need."
Erik Baden, senior vice president and chief marketing officer, added, "The SunAmerica study also revealed that one third of Americans age 55 and older say their financial assets have not yet recovered to pre-recession levels, and almost all Americans in this age group say it's important to protect themselves against financial uncertainties. This rider can help position them for potential asset growth while also guaranteeing a predetermined baseline of future income. That kind of certainty regardless of economic conditions can make the planning process easier."
Available in twenty nine states as of July 25, the rider is an option on the following single premium index annuities: AG VisionMaximizer, AG Horizon Index 9 and 12, AG Global Bonus, and AG VisionAdvantage 7 and 9. At contract issue, the Income Base is equal to the Annuity Value, including any applicable premium bonus. The Income Base used to generate future income is guaranteed to grow at six percent compounded annually. Called the Roll-Up Rate, it increases the Income Base until the earliest of these three events: the 20th contract anniversary, the date the client begins the Income Withdrawal Phase, or the contract anniversary on or immediately following the client's 90th birthday. Each anniversary during both the Growth and Income Withdrawal Phases, if the Annuity Value is greater than the Income Base, the Income Base is "stepped up" to equal the Annuity Value. If the client allows the Income Base to accumulate for 10 years or more, before beginning the Income Withdrawal Phase, the client's Lifetime Income Withdrawal payments will increase by an additional two percent compounded annually each year.
There is an additional cost for this rider, and the client can turn Lifetime Income Withdrawals on or off at any time, take less than the calculated amount or surrender the contract and receive the guaranteed withdrawal value.
For more information about American General's new AG Lifetime Income Builder, call 1-888-438-6933 (Monday - Friday, 7 a.m. - 6 p.m. CT). For more information about eStation, go here. For more information about the SunAmerica Retirement Re-set study, gop here.
Allianz Life Launches Exclusive Allianz 360 Fixed Index Annuity
Product offers increasing income potential to and through retirement
MINNEAPOLIS, Aug. 2, 2011 - Allianz Life Insurance Company of North America (Allianz Life) has announced the launch of Allianz 360, a fixed index annuity (FIA) that is exclusive to Field Marketing Organizations (FMOs) and agents associated with the recently introduced Allianz Preferred distribution model. Currently available in 36 states, the newest FIA to Allianz Life's lineup offers unique increasing income benefits for both accumulation and income.
"It's clear that many boomers are worried about how factors like inflation and longevity will affect the stability of their retirement income," said Allianz Life Senior Vice President of Sales Eric Thomes. "Allianz 360 ensures they are protected with guaranteed lifetime income that has the opportunity to increase when they are in retirement."
Allianz 360, the first exclusive product offered through Allianz Preferred, features a number of unique benefits, including options for increasing income potential to and through retirement.
While accumulating, the lifetime payout percentage increases every year the client holds the contract prior to income beginning, starting at age 40. This is true for both the predictable and increasing income payout options. Another compelling benefit of Allianz 360 is a 50% interest bonus of any interest credited every year prior to taking income withdrawals. The Interest and bonus are credited to the accumulation value, which means it's available for lump sum (surrender charges may apply), income withdrawals or death benefit. Traditional annuity payments are also available.
The combination of these two features with increasing income potential while receiving income withdrawals make Allianz 360 the only product of its kind in the FIA industry. These benefits are available via a mandatory rider which carries a charge of 0.95% of the accumulation value.
"The longer you hold Allianz 360 before taking lifetime income withdrawals, the greater the percentage of income available for lifetime withdrawals will be," said Thomes. "If a customer purchased the contract at age 55 and held it for 10 years, their withdrawal percentage would increase from 3.50% to 7% or 4.50% to 8% depending on the income option they chose. No other annuity offers this benefit."
visit www.allianzlife.com.
The Curious Case of the Income Annuity
If they really are the most efficient, guaranteed cash-flow generators, why aren't more retirees buying them?
by Gary Baker
Mr. Gary Baker is president of the U.S. division. of CANNEX, a privately held company that provides data and information services to the financial services industries in the U.S. and Canada.
If Income Annuities, also known as Single Premium Immediate Annuities, are really the most efficient, guaranteed cash-flow generators that academics and researchers have long said they are, why don't more retirees buy them?
I think they would, but the real question is 'Why don't more advisors promote them as part of their practice?'
There will always be a percentage of advisors who have strong beliefs and biases against considering this product. And still, many back away. Much of this hesitation ultimately has to do with the fact that barriers are built into the system that historically have dissuaded advisors from recommending them.
The good news is that the industry is making steady progress toward eliminating those barriers. And there is plenty of motivation to do so. Existing insurance carriers want to see the $8 billion per year SPIA market grow, and new carriers that are entering the arena want to ensure they provide a basic cash flow generator to their portfolio of retirement income products. Meanwhile, there is growing interest among various distribution channels, particularly among fee-based advisors, who see the value of adding an Income Annuity to a portfolio as a bond replacement for cash flow planning. Lastly, retirees - unnerved by the erosion of nest eggs brought about by the Great Recession and slow economic recovery - are more open than ever to committing some of their savings to these guarantees and security. It's important to understand the obstacles that impede greater adoption of these products. Despite being one of the oldestthey've been around for centuries- and simplest financial products available, Income Annuities are quite possibly one of the least understood, shunned by advisors because of:
- A Perception of Inflexibility and Loss of Control. In some areas, there is a general lack of awareness that an investor or the estate has, in many cases, access to their remaining principal in the contract in the event of death or a change in financial needs. Most Income Annuities purchased today come with these guarantees. Of course, similar to a Bank CD, there are some consequences for taking your money back early. Some speculate that the absence of this information within various training and accreditation programs (e.g., CFP) helps contribute to this lack of understanding.
- Misalignment with Common Financial Practices and Business Models. This is due in part to the fact that annuities disappear from client statements as well as an advisor's Assets Under Management report, which in turn impacts performance reporting and various incentives.
Another roadblock to advisor adoption is that it generally takes more effort to sell and service an income annuity than a mutual fund, for example. That is because much of the information and support advisors receive with other products is not as available with an income annuity. Some examples include:
- Research and education, which currently is extremely low
- Financial planning tools incorporating income annuities,
- On-line applications, which are still not generally available
- In-force policy support, which is lacking.
It's clear that the platform for supporting income annuities needs fixing. Improvements in these areas would help align the product more closely with industry business models, with advisors cash flow practices, and ease of use.
Fortunately, the industry is starting to address these platform barriers by looking to identify common standards and processes. The Insured Retirement Institute (IRI) is facilitating a group to develop income annuity standards for on-line applications (otherwise known as Straight Through Processing). The Retirement Income Industry Association (RIIA) is facilitating another initiative, involving manufacturers, distributors and service providers, to address the availability of information about these products after they have been purchased.
RIIA's Income Annuity Standards & Readiness Committee's is currently addressing the need to provide a value for income annuities, which could be used in a variety of ways: for AUM reporting; on client statements; in planning & allocation tools; for billing for fee-based advisors; and for tax reporting.
Despite the potential usefulness of an income annuity value, a recent RIIA survey of financial advisory firms, product manufacturers, and service providers found that only 15 percent of distributors and manufacturers provide some information about these products on client statements. However, two out of three survey respondents felt that the visibility of income annuity data would be valuable to both clients and their advisors. Furthermore, although advisory firms were split as to whether they would include a market value on a consolidated client statement next to investment values, virtually all parties were in agreement that such a value should be integrated into financial advisors' AUM reporting.
The committee is currently engaged in the significant work of recommending standards on how to fairly calculate an income annuity's value, on what data carriers will need to compile, and on what processes will need to be adopted for maintaining independent variables and calculations.
The goal is to make it easier to communicate with clients about the impact and value of an income annuity as part of a cash flow plan in retirement. By increasing awareness among clients and removing the barriers impeding advisors, the industry can make the benefits of income annuities available to more people through more advisors and with more clarity than ever before.
Fixed Annuity Bank Sales Total $4.93 Billion in Q1 2011
Following a trend of risk-aversion
WASHINGTON -Fixed annuity sales by banks and other depository institutions generated $4.93 billion in this year's first quarter, a 16 percent increase over the same period a year ago, according to data released by the American Bankers Insurance Association. The data also indicated that quarter to quarter sales grew 56 percent. The sales estimates are based on findings from the Beacon Research Fixed Annuity Premium Study.
"Though low by historical standards, fixed annuity rates were higher than in fourth quarter 2010," said Jeremy Alexander, president and CEO of Beacon Research. "Decisions by many carriers and banks to increase fixed annuity sales undoubtedly played a role as well. In addition, risk aversion has increased, and that tends to favor sales of fixed annuities over variable annuities."
A surge in sales of fixed rate annuities without market-value adjustments, or MVAs, drove overall results. MVAs increase or decrease the value of annuity withdrawals, depending on whether interest rates have fallen or risen since the annuity was purchased.
Improved sales were reported by more than one-third of the bank channel carriers tracked by Beacon's study, with 69 percent reporting improved quarter-to-quarter sales. Western National Life maintained its position as the leading bank channel company among study participants.
First quarter 2011 bank channel results for the 10 leading companies were as follows:
Company Bank Channel Sales (in ,000s)
Western National Life 2,103,924
New York Life 618,304
Symetra Life 548,366
Great American Financial Resources, Inc. 271,448
Lincoln Financial Group 252,839
American National 238,454
Protective Life 215,064
Jackson National 179,258
W&S Financial Group Distributors 177,536
Pacific Life 81,659
Western National's Flex 7 moved up two places to become the quarter's top bank channel fixed annuity. Protective Life's ProSaver Secure II rejoined the top ten in tenth place. Lincoln Financial Group's New Directions continued as the only top-ten indexed annuity, coming in fifth place.
The first quarter's leading bank-sold annuities were as follows:
Rank Company Product
1 Western National Life Flex 7
2 Western National Life Proprietary Bank Product A
3 New York Life NYL Preferred Fixed Annuity
4 Western National Flex 5
5 Lincoln Financial Lincoln New Directions
6 Western National Life Proprietary Bank Product F
7 New York Life NYL Secure Term Fixed Annuity
8 Western & Southern MultiRate Annuity
9 Western National Proprietary Bank Product B
10 Protective ProSaver Secure II
About the American Bankers Insurance Association
The American Bankers Insurance Association is the separately chartered insurance subsidiary of the American Bankers Association and is the only Washington, D.C.-based full service association for bank insurance interests. ABIA’s mission is to develop policy and provide advocacy for banks in insurance and to support bank insurance operations through research, education, compliance-assistance and peer group networking opportunities. ABIA Membership consists of banks, and their affiliated agencies, insurance companies, marketing, and administrative services suppliers, non-bank lending organizations and other firms involved in the bank affiliated insurance industry. Additional information on ABIA can be at www.theabia.com.
About Beacon Research
Beacon Research is an independent research company and application service provider founded in 1997 and based in Evanston, IL. Beacon tracks fixed and variable annuity features, rates and sales. Its quarterly Fixed Annuity Premium Study is the first and only source to analyze fixed annuity sales at the product level. Beacon lowers compliance risk and increases fixed annuity sales with 100% carrier-approved, comprehensive product profiles, spreadsheets and search tools for the advisor/rep websites of banks, TPMs, broker-dealers and marketing organizations. Financial institutions use its systems at www.annuitynexus.com for compliance review of 1035 exchanges, sales support, conservation and product research. Beacon also licenses information to other platforms, including Ebix, Ibbotson, Insurance Technologies, and Interactive Data Corporation. Beacon is a member of National Financial's Alliance program. Directly and through its licensees, Beacon information can be accessed by hundreds of financial institutions and other annuity distributors.
Challenges are ahead for variable annuity sales
Study cites lack of wholesaler prospecting, limited adviser penetration
by Darla Mercado / posted at Investment News - June 30, 2011 2:22 pm ET
Carriers think variable annuities are an attractive area for growth, but the product line faces some hurdles that may dampen sales.
While gross sales of variable annuities appear to be rising modestly, much of that growth seems to be coming from product exchanges, rather than inflows of new money, according to a report on the annuity and insurance industry from Cerulli Associates Inc. Gross sales of variable annuities reached $138 billion last year, reflecting a 2% annualized increase from $113 billion in 2001, the research firm found.
Life insurers believe that low interest rates have taken the spotlight off of fixed annuities and immediate annuities, highlighting variable annuities as the product line for which the most growth is projected. However, most advisers aren't using the products: Just 35% of 334,160 retail financial advisers actively recommended variable annuities in the past year, Cerulli noted. About 18% of financial advisers sell at least a dozen contracts a year and are responsible for generating nearly 70% of adviser-sold VA transactions, according to Cerulli.
Annuity wholesalers also tend to spend a lot of time with VA high rollers, concentrating on advisers who generate a lot of business, instead of prospecting or finding new asset sources, according to the report. Still, VA wholesalers vastly outnumber their asset-management-selling counterparts. Sales forces for variable annuities average out to 57 external wholesalers and 45 internal wholesalers, with the largest armies boasting more than 200 internal and external wholesalers each, Cerulli found. In contrast, the largest wholesaling teams for asset managers have fewer than 100 salespeople.
Cerulli is bullish on how advisers will react to fee-based variable annuities. Adjusting the pricing to fit onto a fee-based platform is only one step toward getting those advisers accustomed to the products, said Bing Waldert, director at Cerulli Associates. The wholesaling effort will have to change entirely and concentrate on how advisers can use the product, instead of the annuity's bells and whistles, he said.
"Reinventing the variable annuity isn't repricing; it's repositioning," Mr. Waldert said. "It doesn't mean more features and benefits, but more about putting the product into the adviser's business and demonstrating the advantages of the annuity."
Annuity wholesalers tend to spend more time comparing their products to competing annuities and less time asking about the adviser's client base or talking about generating income, Mr. Waldert said. Insurers need to overcome that challenge in order to make a strong impression on fee-based advisers, he added.
The research firm also hypothesized that advisers would turn away from variable annuities as insurers leaned toward tamer subaccount investments. The average variable annuity contract had 36 investment options and 14 different fund managers at the end of last year.
Exclusive IRI Report:
Consumer Demand for VA Summary Prospectus Continues to Grow
Seven out of Ten Consumers Seldom or Never Read Their Prospectus
WASHINGTON, D.C. -The Insured Retirement Institute (IRI) today released an exclusive report that found that the consumer demand for a variable annuity (VA) summary prospectus continues to grow. The report 'Variable Annuity Summary Prospectus High in Demand by Consumers' found that nearly all consumers (94%) would prefer to receive a shorter, printed summary prospectus instead of a full prospectus if details were available online or upon request. This is up from 86% in a similar survey conducted one year ago. In addition, if provided with a short summary prospectus written in clear, everyday language, 59% would be more likely to discuss the product with their advisors.
"Consumers are looking for clear and concise information when making investment decisions, particularly when it comes to strategies that may be a bit more intricate," said IRI President and CEO Cathy Weatherford. "Our research shows that the vast majority of investors completely forgo reading their full prospectus, because of its length or other consumer preferences. At a time when consumer reliance on insured retirement strategies is growing, we need to ensure that investors have access to the kind of product information they are seeking, in a format that reflects their preferences."
Other key data points from
'Variable Annuity Summary Prospectus High in Demand by Consumers' include:
- Consumer Behavior at Point of Sale. While seven out of ten consumers seldom or never read their prospectus, only 5% report that they always read the current prospectus and just 17% read it most of the time.
- Consumer Behavior After Purchase. Nearly nine out of ten (87%) of annuity contract owners rarely or never refer to their prospectuses for questions about their annuities after purchase. Only a handful (13%) have referred to their prospectuses after purchasing a variable annuity.
- Information Most Important to Consumer. The most often-read parts of a VA prospectus are the summary/highlights section (98%) and the information of fees and expenses (97%). Deductions from accounts in the forms of sales loads and commissions are read by 88% of respondents.
- Only 58% of VA owners look at the descriptions of contract benefits, although 69% will read the section focused on death benefits.
Click here to read the full report.
Proprietary data in this report is derived from IRI surveys of investors, insurers, and variable insurance asset managers during first quarter 2011. The investor survey, conducted for IRI by Cogent Research, gauged the perspectives of 709 retirees and pre-retirees with at least $100,000 in investable assets, including workplace plans but excluding the value of any real estate. The second conducted for IRI by Cerulli Associates, examined attitudes of three dozen insurers and asset managers regarding the future of the VA industry. IRI provided analysis and commentary for the results of both surveys in June 2011.
About the Insured Retirement Institute: The Insured Retirement Institute (IRI) is a not-for-profit organization and is the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI's mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policy makers on critical issues affecting insured retirement strategies. Visit www.IRIonline.org to experience the new, vast resources of the new Insured Retirement Institute for yourself.
The Hartford Launches Enhanced Offerings To Its Variable Annuity Suite
New offerings provide principal and income guarantees to help consumers protect and grow retirement income
Simsbury, Conn., June 13, 2011 - The Hartford is introducing three personal protection options as a part of its Hartford's Personal Retirement Manager variable annuity suite. The new features provide a unique range of solutions to meet customers' retirement accumulation, income and legacy needs.
"We are excited to offer consumers and distributors an expanded suite of variable annuity offerings with very competitive benefits at attractive prices," said David N. Levenson, president of Wealth Management at The Hartford. "Across Wealth Management, we want to help customers in their pursuit of security in retirement. Growing our annuity business is an important component of that strategy."
Building on Hartford's Personal Retirement Manager variable annuity, the company has added the following personal protection options:
Future6- a lifetime guaranteed minimum withdrawal benefit that provides income protection and a 6 percent deferral bonus with market participation through the new Personal Protection Portfolios, which are designed to reduce the volatility of a consumers investment portfolio;
Future5- a lifetime guaranteed minimum withdrawal benefit that provides income protection and a 5 percent deferral bonus with market participation through diversified investment portfolios; and
Safety Plus- a 10-year guaranteed minimum accumulation benefit that provides principal protection with market participation through the new Personal Protection Portfolios and a bonus to future payout rates if it is transferred to the annuity's Personal Pension Account at the end of 10 years.
A unique aspect of Future6 and Safety Plus is the introduction of the Personal Protection Portfolios. These required asset allocation models provide access to a range of world-class investment managers while helping reduce the volatility of a consumer's investment portfolio through various market environments. The product also offers legacy protection through two optional death benefit options.
"Even as the investment markets continue to rebound, our clients remain worried about meeting their basic retirement needs," said Rob Arena, executive vice president of The Hartford’s Global Annuity business. "Investment risk, longevity risk and the fear of running out of money are top-of-mind and The Hartford has enhanced its offering to help address these concerns."
The product enhancements are part of a series of investments The Hartford is making in its annuity business in recent months to better serve clients and support growth. In 2011, the company has bolstered technology capabilities, added sales professionals, brought on a new product and marketing leader and launched a new annuity-focused advertising campaign.
For more information on The Hartford’s Personal Retirement Manager, go to www.hartfordinvestor.com.
Retirement Income Training Key
to Expanding Advisor Use of Variable Annuities
Nearly Half of Asset Managers and Insurers Cite Increased Education as Top Strategy
to Pursue To Attract New Advisors to Insured Retirement Strategies
WASHINGTON, D.C. - The Insured Retirement Institute (IRI) [this week] released a survey in partnership with Cerulli Associates that examines asset manager and insurer attitudes toward the future of the variable annuity industry. When examining the most promising strategy for broadening the number of advisors who sell variable annuities, asset managers and insurers alike, 50% and 46.7% respectively, stated that increased retirement income training was the best approach to pursue. The survey shows that insurers and asset managers find that focusing on increasing awareness as to how a variable annuity can fit into a piece of retirement income plan could increase the number of advisors significantly.
"As a whole, the financial industry has done a good job educating advisors on strategies to help consumers accumulate wealth and manage their financial resources, but we have room to improve when it comes to the decumulation side of the equation," said IRI President and CEO Cathy Weatherford. "When it comes to long-term financial security, IRI research shows that Boomers are most concerned about having sufficient income throughout their retirement. However, we have found that nine out of ten Boomers who own annuities have a higher confidence in the financial stability of their retirement when compared to those who do not. With the need for guaranteed lifetime income at an all time high, there is a great incentive for the industry to ensure that advisors have the necessary tools and information to help alleviate client retirement concerns and provide the financial safety and security investors seek."
The survey also found that:
Insurance companies named being a 'prudent innovator' as the most common product development strategy, with nearly half indicating that this is their preferred approach.
Non-qualified variable annuities and income guarantees in defined contribution plans are ranked the highest by insurers when indicating future product and distribution opportunities -- earning a 3.8 and a 3.7 out of 5 ranking respectively.
More than two-thirds (63%) of insurers rank the independent broker/dealer channel as the leading space to grow variable annuity sales within the next two years. Rounding out the top three channels for opportunity are the bank channel and wirehouses, with 54.5% of insurers citing upcoming sales growth in both areas.
The key findings and analysis can be found HERE.
About the Insured Retirement Institute: The Insured Retirement Institute (IRI) is a not-for-profit organization and is the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI’s mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policy makers on critical issues affecting insured retirement strategies. Visit www.IRIonline.org to experience the new, vast resources of the new Insured Retirement Institute for yourself.
Annuity Sales Post Double Digit Increase
As Industry Wide Sales Rise, VA Assets Post Highest Level Ever Recorded
WASHINGTON, D.C. - The Insured Retirement Institute (IRI) today announced first quarter results for the United States annuity industry. Annuity sales for the first quarter posted a double digit increase over sales from the same time period last year. Industry wide sales were $58.1 billion, up 17% from $49.7 billion in the first quarter of 2010. First quarter sales also garnered quarter-to-quarter growth, increasing at a rate of 5% over $55.2 billion from the fourth quarter of 2010. Of note, variable annuity assets reached $1.6 trillion, the highest level ever recorded by Morningstar.
"With the first wave of the 79 million Baby Boomers turning 65 this year, guaranteed retirement income strategies clearly are being relied upon in growing numbers," said IRI President and CEO Cathy Weatherford. "Recent IRI research shows that 92% of Boomers who own annuities have a higher confidence in the financial stability of their retirement compared to those who do not. The first quarter data shows that the peace of mind that only annuities can bring to a holistic portfolio is being increasingly recognized by those most in need of guaranteed retirement income, a trend that we expect to continue throughout the year."
Fixed annuity sales for the first quarter were $18.9 billion, up from $17.6 billion in the previous quarter, representing a 7% increase. Year-to-year quarterly sales of fixed annuities were up 6%, increasing from $17.9 billion in the first quarter of 2010.
"Fixed rate deferred annuity sales benefitted from a large bank channel increase by one carrier in particular," said Beacon President and CEO Jeremy Alexander. "The quarter to quarter decline in income annuities was mainly seasonal. Indexed annuities may have lost sales to variable annuities, because VAs have more upside potential in a rising stock market. We think second quarter results may be strong as well. But falling rates may dampen sales going forward."
Variable annuity sales for the first quarter were $39.2 billion, up 4% from $37.6 billion in the previous quarter. Year-to-year quarterly sales of variable annuities were up significantly, posting a 23% increase from first quarter 2010 sales of $31.8 billion. First quarter 2010 net sales were $5.8 billion. There were $26.2 billion in qualified sales and $13 billion in non-qualified in the first quarter.
"The upticks in both sales and net cash flow suggest growing momentum in variable annuity usage as Advisors continue to become more educated about the unique benefits of variable annuities and grow increasingly comfortable with them as an important component of a sustainable income producing portfolio," said Morningstar Director of Insurance Solutions Frank O'Connor.
For additional data reporting, please access the PDF available at the link above.
About the Insured Retirement Institute: The Insured Retirement Institute (IRI) is a not-for-profit organization and is the authoritative source of all things pertaining to annuities, insured retirement strategies and retirement planning. IRI exists to vigorously promote consumer confidence in the value and viability of insured retirement strategies, bringing together the interests of the industry, financial advisors and consumers under one umbrella. IRI's mission is to: encourage industry adherence to highest ethical principles; promote better understanding of the insured retirement value proposition; develop and promote best practice standards to improve value delivery; and to advocate before public policy makers on critical issues affecting insured retirement strategies. Visit www.IRIonline.org to experience the new, vast resources of the new Insured Retirement Institute for yourself.
About Beacon Research: Beacon Research is an independent research company and application service provider founded in 1997 and based in Evanston, IL. Beacon tracks fixed and variable annuity features, rates and sales. Its quarterly Fixed Annuity Premium Study is the first and only source to analyze fixed annuity sales at the product level. Beacon lowers compliance risk and increases fixed annuity sales with 100% carrier-approved, comprehensive product profiles, spreadsheets and search tools for the advisor/rep websites of banks, TPMs, broker-dealers and marketing organizations. Financial institutions use its systems at www.annuitynexus.com for compliance review of 1035 exchanges, sales support, conservation and product research. Beacon also licenses information to other platforms, including Insurance Technologies’ VisibleChoice™ annuity sales platform, Ebix, Lipper, and Ibbotson Associates. Directly and through strategic alliances, Beacon information can be accessed by hundreds of financial institutions and thousands of advisors.
About Morningstar, Inc.: Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offers an extensive line of Internet, software, and print-based products and services for individuals, financial advisors, and institutions. Morningstar provides data on approximately 350,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 4 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. The company has operations in 20 countries and minority ownership positions in companies based in two other countries.
Embracing the need for more detailed information
about your clients' income-annuities
Industry group envisions a more 'holistic' approach valuation, client service
Financial advisors and their clients would benefit from receiving more precise information about their existing immediate income annuity contracts, according to a new Retirement Income Industry Association (RIIA) survey released today and sponsored by MetLife, New York Life Insurance Company, and CANNEX Financial Exchanges
According to Gary Baker, President of CANNEX USA and the Chair of the RIIA Income Annuity Standards and Readiness Working Committee, one of the most pressing concerns is that when an income guarantee is purchased, information about the money that is annuitized literally disappears from any consolidated statements that either the client or advisor receives.
The RIIA Working Committee, which is charged with addressing business barriers to income annuity growth, surveyed a broad representation of the industry including financial advisory firms, product manufacturers, and service providers to understand the various uses and availability of income annuity information. The survey also evaluated the use of a market value to potentially improve the integration of income annuities within an actively managed retirement portfolio that would include a variety of investments and products.
The survey found that:
- Only 15% of distributors and manufacturers provide some information about the products on client statements.
- However, two out of three survey respondents felt that the visibility of income annuity data would be valuable to both clients and their advisors and would actually increase the availability of these products across the financial advisor community.
The survey also evaluated the utility of using various forms of valuation for planning processes, client statements, assets under management reporting as well as billing for fee-based advisors.
-Although advisory firms were split as to whether or not they would include a market value on a consolidated client statement next to investment values, virtually all parties were in agreement that such a value should be integrated into any asset under management reporting for a financial advisor.
"Historically, financial advisors have struggled to maintain a cash flow plan for their clients in retirement," said Baker. "Today, however, many advisors are discovering that allocating a portion of the portfolio to an income annuity not only helps alleviate the strain in the process for both parties, but also helps free up additional resources and time to address other retirement and estate needs." Baker believes that by providing more information about clients’ income annuities, the industry can increase alignment with financial advisors' business and service models.
Matt Grove, Vice President, New York Life, also a sponsor of the RIIA survey and a participant on the committee, commented: "Currently, when an immediate income annuity is purchased, neither the money invested, nor the lifetime income received, is communicated in the client's financial statements nor the financial advisor's reports. The survey reveals that clearly communicating this information will help remove barriers to the adoption of income annuities in Americans' retirement plans." In addition, Grove points out that advisors would understand the value of these products and would no longer feel penalized for offering guaranteed lifetime income products as part of a portfolio.
Bennett Kleinberg, Vice President and Senior Actuary from MetLife, believes that when advisors are tracking and evaluating their clients' financial portfolio over time, they should be able to see a full accounting of their assets at work for them. "In the case of an income annuity, this could either be the amount of the premium they paid for the benefit or an assumed market value," explained Kleinberg who is a member of the committee and a sponsor of the survey.
Based on key information and insight from the survey, the RIIA Working Committee's next steps for addressing this income annuity communication and valuation issue will be to establish standards for sharing data between manufacturers and distributors, as well as the methodology to derive a present value of the income stream of an existing contract that is consistent across all products.
Currently, over 30 businesses representing manufacturers, distributors, and service providers from 'Across the Silos' participate on this special working committee.
About Retirement Income Industry Association (www.riia-usa.org)
Founded in 2006 by leading companies, advisors and academics, RIIA and its members address the challenges facing the dramatically changing retirement income landscape. RIIA's mission as a national not-for-profit organization is to bring the retirement income industry together with a 'View Across Silos' to stimulate the development of the products, processes and advisory services Americans need to create a secure retirement. Because RIIA members span the entire industry, they create a forum for sharing the freshest outlooks, the most modern thinking, the latest research and the newest product development within the realm of retirement income.
Titling, Landmines, Ostriches and Heroes
Keeping annuity ownership up to date
By Charles D. Osmond, CLU, ChFC
Advanced Markets Attorney, W&S Financial Group Distributors, Inc.
Could landmines be lurking in the landscape of a financial professional's book of business right now? They very well may be. Case in point: If titling is out of date on annuities owned by clients in that book.
It's a matter of no small importance. Property owners understand that title searches and title insurance help protect their interest in real estate. Current and correct titling likewise helps protect the interests of various parties to an insurance contract.
Trouble may arise when contract titling lags reality, such as when changes in a client's situation render ownership and beneficiary designations outdated. The best advice is to stay current, look ahead and proceed with caution. Changes in circumstances and relationships can create unintended consequences - landmines when it comes to the payout of annuity proceeds, for example.
In 2004, in what seems to be the most recent examination of the topic, Advanced Sales & Marketing Corporation studied retirement annuity ownership arrangements, beneficiary designations and contract terms. That research found 38% of annuities were not set up to pay the death benefit to the intended party at the death of the owner or annuitant.*
That's a startling statistic. And one that can turn a contented relationship into a contentious situation. Unfortunately such reversals often become apparent only when it's too late to correct them.
That's why annuity ownership and beneficiary designations should be reviewed and confirmed on a regular basis. It is especially important to review such information after the occurrence of a major life event for a person who either is a designated beneficiary, or who should be added or removed as a designated beneficiary.
It's relatively easy to do a titling review by phone or in person. It may only take a few minutes. And it can start by asking clients if these life events have occurred since the product was put in place:
- Marriage or divorce
- Beneficiary death
- Birth or adoption
- Substantial estate value change
Any could signal a change in a contract's titling may be due.
Avoid the Ostrich Approach
If annuities are part of a recommendation for meeting a client's retirement objectives, the financial professional needs to be sure to address annuity structure - at sale and in the future. Too often, the participants may be tempted to use the ostrich approach, burying their heads in the sand when it comes to an unfamiliar subject such as contract titling. But treating an annuity structure issue as though it does not exist could end up being unproductive, time-consuming and expensive for both client and representative.
Annuity contracts vary widely from company to company, and even among annuity products issued by the same company. The heads up approach is to be aware of the basic information on this important topic.
Know the terms of an annuity contract and how they affect its operation.
Learn how insurance and tax laws affect the operation and taxation of an annuity in its accumulation and distribution phases.
Be aware of what will happen at the death of an owner or annuitant.
Find out if designations established when the annuity was bought reflect the owner's current distribution objectives.
It's important that financial professionals stay on top of this information. Knowledge is power - power to assist clients to the best of the representative's ability and help defend them against unanticipated issues such as incorrect titling.
Be a Hero
Of course, reviewing annuity titling is more than just a defensive strategy. It also can uncover other risk management needs. The possibility of identifying a potential hidden problem provides a reason to contact clients and demonstrate a consultative approach to financial services that enhances the provider's image and professionalism. In addition, if a client has indeed experienced a change that affects their contract structure, a representative can address a problem the client may not even know had existed. And that may make them a hero in the eyes of the contract holder.
This can be part of a regular beneficiary review that adds value to the client relationship. It helps assure that the relationship isn't ruined by a potential unwelcome surprise in the future, one that easily could be avoided at present.
Beyond that, it can also be a springboard for examination of titling on other plans and products - even ones obtained elsewhere. This may call for review of information about all of a client's retirement accounts, allowing advisors the ability to gain a better understanding of the overall financial picture. The result may be additional opportunities to provide assistance for more assets and other needs.
In today's world, life seemingly grows busier and more complex each day. That's what makes a titling checkup difficult but necessary. Every representative should make time to review this important topic with every client. The opportunity to prevent landmines, avoid ostriches and be a hero starts now.
2010 saw record-high sales of fixed indexed and income annuities
Beacon Research: Guarantees, downside protection fueled the growth
Evanston, IL, March 8 - Fixed indexed and income annuities broke sales records in 2010, according to the Beacon Research Fixed Annuity Premium Study. Annual indexed annuity results climbed 6% to an estimated $31.4 billion. Income annuity sales grew 2% to $8 billion. Each product type also claimed its largest share of sales in the 8-year history of the study, 48% for indexed and 11% for income annuities.
“Both product types benefitted from growing interest in guaranteed lifetime retirement income and protection from downside risk, according to Jeremy Alexander, CEO of Beacon Research.
Fourth quarter indexed annuity sales were an estimated $8 billion, 16% ahead of fourth quarter 2009. Income annuity sales of $1.9 billion advanced 4% from the year-ago quarter. Indexed and income annuity sales fell quarter-to-quarter by 7% and 11%, respectively.
Total U.S. sales of fixed annuities were an estimated $71.7 billion in 2010. These results were 31% below 2009, the second-strongest year in the Study's 8-year history. Estimated fourth quarter sales of $16.7 billion slipped about 14% compared to both the year-ago and prior quarters.
Fixed rate annuity results were negatively affected by 2010's unfavorable interest rate environment. Annual book value sales
dropped 49% from 2009 to an estimated $26.5 billion, while market value-adjusted products slid 61% to $5.8 billion. Fourth quarter book value sales were $5.6 billion, down 38% and 19% from the year-ago and prior quarters, respectively. MVAs fell 29% relative to both periods, to $1.3 billion.
Allianz led sales for the second consecutive quarter. American Equity (NYSE: AEL) moved up two notches to come in second, replacing Aviva, which came in fourth. New York Life continued in third place. Western National rejoined the top five in fifth place. Fourth quarter results for the top five Study participants were as follows:
Total Fixed Annuity Sales (in thousands)
Allianz Life 2,003,961
American Equity Investment Life 1,554,401
New York Life 1,340,157
Aviva USA 1,334,859
Western National Life 1,095,346
Western National once again traded places with New York Life to become the quarter's top company in book value annuity sales. Allianz continued as the dominant issuer of indexed annuities, and New York Life remained the long-time leader in income annuity sales.
Three of these companies also were distribution channel leaders. Allianz had top sales through independent agents. New York Life was the dominant company in the career agent and large/regional broker-dealer channels. Western National led in bank channel sales. The remaining channel leaders were: MassMutual, independent broker-dealers; Pacific Life, wirehouses, and; USAA, direct/third party.
Of the 500 products tracked by the Study, both Allianz and American Equity had two indexed annuities in the top five. The Allianz MasterDex X was the bestseller again, while Endurance Plus came in fifth. American Equity Retirement Gold moved up a notch to take second place and its Bonus Gold placed fourth. The New York Life Lifetime Income Annuity advanced one notch to come in third.
Rank Company Name Product Name Product Type
1 Allianz Life MasterDex X Indexed
2 American Equity Retirement Gold Indexed
3 New York Life NYL Lifetime Income Income
4 American Equity Bonus Gold Indexed
5 Allianz Life Endurance Plus Indexed
The New York Life Preferred Fixed Annuity was the new bank channel bestseller. In the large/regional B-D channel, The New York Life Secure Tern Fixed Annuity replaced another New York Life product. The other channel-leading products were repeat performers.
Channel Company Product Product Type
Banks and S&Ls New York Life NYL Preferred Fixed Annuity Book Value
Captive Agents New York Life NYL Lifetime Income Annuity Income
Direct/Third Party USAA Flexible Retirement Annuity Book Value
Ind. Broker-Dealers MassMutual RetireEase Income
Independent Prod. Allianz Life MasterDex X Indexed
Large/Regional B/Ds New York Life NYL Secure Term Fixed Annuity Book Value
Wirehouses Pacific Life Pacific Frontiers II MVA
Fourth quarter interest rate environment was a difficult one for fixed annuity sales. Although rates increased, the fixed annuity rate advantage diminished, and rising rate expectations were a disincentive to buy. Those who did purchase fixed annuities chose shorter rate terms to avoid locking in fourth quarter rates for longer periods.
'Consumer demand for conservative investments with guarantees continues to be very strong,' commented Alexander. 'We expect fixed annuity sales growth to resume when the rate environment becomes more favorable.'
About the Beacon Research Fixed Annuity Premium Study
The quarterly Study is the first and only source to track and analyze product-level fixed annuity sales on an ongoing basis. Providing timely market intelligence of the highest quality, it is designed to report what is moving in each channel and why.
About Beacon Research
Beacon Research tracks fixed, indexed and variable annuity sales, rates and features, and provides web-based systems at www.annuitynexus.com for distributors and insurance companies. Beacon also licenses information and software tools to other platforms, including EbixExchanges AnnuityNet annuity automation platform. Beacon's fixed annuity benchmark series -- the industry's first - is available through Ibbotson Associates. Directly and through strategic alliances, Beacon information can be accessed by hundreds of financial institutions and distributors.
Contact: Judith Alexander, 847.864.5447, judith@beaconresearch.net
Trends in Income Annuities
One of the oldest and simplest products available, but possibly the least understood
by Gary Baker
Gary Baker is president of the U.S. division. of CANNEX, a privately held company that provides data and information services to the financial services industries in the U.S. and Canada. CANNEX works with all the major insurance carriers that broker and distribute income annuities and which represent approximately 70 percent of the SPIA business in the U.S. market.
Immediate income annuities have long been recognized by academics and financial experts as one of the most efficient vehicles to generate cash flow for an investor in retirement. It is one of the oldest (2,000 years +) and simplest financial products available, but possibly the least understood. With the recent pressures placed on other forms of insured guarantees (e.g., Deferred Variable Annuities with Living Benefits), there is a renewed emphasis on this basic but important product. Development is accelerating across the industry to better align income annuities within an investors product portfolio. Here are some of the major trends.
Addressing flexibility objections
If the income annuity is an efficient and effective vehicle to complement a retiree portfolio, why is it that financial professionals do not adopt it more broadly? Generally, there are still many misconceptions about immediate annuities. Too often they are confused with deferred annuities by the financial planning community and financial media alike. Among financial planners who are aware of the product, many contend that income annuities are not flexible enough to integrate within a financial plan and that they will lose control of the assets if a plan changes over time. These advisors are saying, in essence, that an income annuity does not fit within their service, business and revenue models.
In addressing the flexibility issue, manufacturers have increased their efforts to provide more liquidity with these types of contracts. Today, a majority of income annuities are sold with some form of cash refund or guaranteed period (i.e., period certain) regardless of what happens to the annuitant. Although this addresses the if I get hit by a bus and the insurance company keeps my money issue, these forms of liquidity ultimately go to the beneficiaries. Increasingly, manufacturers are focusing on innovations that will address forms of liquidity for the annuitant while they are still alive. However, similar to the cost of cashing in a CD too early or not holding a bond until maturity, there will always be a cost to cashing in an income annuity in the event a client changes his or her mind. In the case of an income annuity, the intent is to hold it for a lifetime.
There are generally two parts to an income annuity contract: the guaranteed period (if elected) and the lifetime contingent portion (i.e., the part that keeps going until you die). Typically, when investors fully or partially cash in on the guaranteed period part of the contract, the original income stream will restart and continue throughout the lifetime portion. Recently, more options have been introduced that provide easier access to cash, enabling the investor to elect to receive one years worth of payments in a lump sum to address short term needs. However, investors typically can do this only once during the life of the contract. As far as the lifetime portion of the contract, manufacturers continue to limit the amount that you can partially cash in on certain contracts so they can preserve their ability to give an investor survivor credits, the third form of return, in addition to principal and interest, that is the essence of an income annuity. Future innovations will look to better align the ability to cash in both portions of the income annuity contract.
Managing a retirement income portfolio
These advancements in liquidity alone do not address the perception of an income annuity as a dead asset, one that cannot be managed over time. This stigma is starting to diminish among advisors as new tools and processes emerge to assist them with managing retirement income portfolios. Many advisors contend that converting an accumulation plan and portfolio (one which they have been assisting their client with for many years) into a cash flow plan and portfolio is unnatural to them and presents one of their most difficult professional challenges. Depending upon the type of practice a financial advisor has, he or she will generally use one of three sales or planning tracks in developing a cash flow plan for clients:
1. Time Segmentation (or bucketing), by which an advisor sets up a series of investment buckets to address retirement and estate needs over time.
2. Setting up a guaranteed income stream to cover Essential Expenses (e.g., food and shelter) beyond what a Social Security or pension check can provide.
3. Managing a Systematic Withdrawal process from a client portfolio that uses an income annuity as a bond replacement.
The common element with each of these approaches is that only a portion of the client assets is allocated into an income annuity. In other words, it is not an all or nothing proposition. In reality there are still a variety of decisions that can be made with the assets committed to an income annuity contract over time:
1. Changing the use or direction of the monthly payout (for reinvestment or other funding)
2. Incrementally allocating more assets into the contract as long term needs change (e.g., laddering)
3. Triggering certain liquidity options as short term needs arise.
Organizations are developing educational accreditation and designation programs to help advisors learn and understand how to manage the complexities of a cash flow plan. For example, InFRE has a Certified Retirement Counselor (CRC) program that provides a curriculum for advisors who wish to add retirement income planning to their specialty. Also, the Retirement Income Industry Association (RIIA) has recently introduced the Retirement Management Analyst (RMA) program in partnership with Boston University through which an advisor can develop the technical capability to manage a variety of retirement income strategies.
Accounting for assets
Finally, broader adoption comes down to having the income annuity better align with the business and revenue model of the financial professional. One of the most significant gaps today is that income annuity data is not universally available. When advisors place a portion of the client assets into income annuities to support cash flow plans, those assets disappear from the consolidated statements and the AUM reports. Setting aside investor behavioral finance issues, this omission impacts the scorekeeping and compensation programs for advisors and their firms. It is assumed that if there were a standard process to make income annuity information (including the value of the guarantee) universally available on statements and reports, the adoption of this product would significantly improve, leading to a more transparent way to fill the growing guaranteed income gap in the U.S. market. The increase in fee-based programs and practices also would support such a standard. Encouragingly, RIIA is facilitating an initiative, involving manufacturers, distributors and service providers, to determine common definitions and standards for the valuation income annuities and how to best communicate this data for the benefit of both consumers and financial advisors.
Indexed annuities- the real deal or smoke and mirrors?
You have to understand what these products can and cannot do
by Mike Janky
Mr. Janky is a principal with Forward Strategies, a Tucson based annuity marketing company. He can be reached at mikejanky@fsib2000.com
Indexed annuities were introduced in the insurance market about 16 years ago. Have these products performed as promised or have they been just another disappointment to the policyholders? What is the future of these products and are they here to stay or will they be put out to pasture?
When indexed annuities hit the market place in the spring of 1995, the stock market was in the midst of a decade long run from 1990 to 2000. It seemed that if you were in the stock market, you couldn’t help but make a double digit return. Many people wondered why they should give up part of that upside potential. Well, we all probably remember what happened beginning in March of 2000. The stock market took a turn for the worse and we spent the next decade trying to make back what was lost. This last decade was exactly the reason people gravitated towards safety and indexed annuities. The primary focus for many people was to make sure they didn’t loose any more money. Many people flocked to fixed rate vehicles like CD’s, treasuries and fixed annuities. The only problem with that was as the stock market was struggling, fixed rates were on their way down as well. Now when we look at the goal of an indexed annuity, it really is pretty simple. It is to try and earn a rate that is better than traditional fixed rates while at the same time protecting the principal. For the most part, these products have done exactly that.
Indexed annuities have not been sheltered from the challenges that other fixed options have had. When interest rates decrease to as low as levels as they have, it puts a lot of pressure on the insurance companies to be able to offer strong caps and participation rates. The insurance companies have had to drop these rates and caps in order to continue to be able to offer these products. With that being said, they still can be a good alternative to other fixed rate options. It’s important when you are looking at these products to understand where the opportunities are. For a number of indexed annuities, they still can offer some very good upside potential. It depends on what indexing strategies are offered. For someone that is looking to capture a big gain in a year, an indexing option that offers a participation rate with no cap can give that upside potential. Many of the indexed annuities will have a number of different strategies to choose from. One challenge to be aware of is that the participation rates can be low. But even if they are at 40%, if the market has a big run and is up 30%, that would give a person in that strategy a 12% return. How many years would it take a person in today’s interest rate environment to earn 12%. Based on current rates it would take around 4 years to equal that. Another attractive option can be the monthly point to point strategy. If you have a cap rate of 2%, then there is an upside potential of 24 % for the year. The reality of having the market increase 2 percent or more each month on your monthly anniversary for 12 months in a row is slim at best. But there is a chance you could end up with a better rate than a traditional fixed rate option. Now we also know that with these products, there are going to be years that the market is either flat or negative and no interest will be credited and that has to be taken into account. The focus still needs to be on what these products can accomplish over a long period of time.
Part of the challenge with these products is that a person has to understand what these annuities will and won’t do. For starters, they will allow a person to partake in part of the upside potential of the markets. The policyholder has to understand that in years where there are big gains in the market, they will not be receiving all those gains. They are trading full participation in the markets for the peace of mind of knowing that if the market tanks, they are not actually in the market and will not be losing any of their principal. Setting realistic expectations of the policyholder is a must. Also, the key focus on these products really needs to be the protection of principal. On years where the market drops, knowing that all their money is safe including any previous gains that have been locked in, will go a long ways in helping a policyholder remain satisfied.
So what is in the future for these indexed annuities? Over the past few years, there have been some intense battles waged regarding who should regulate these products between the insurance industry and the SEC. Last year a law was passed to ensure these products do remain under the supervision of the insurance industry. With that being said, these products still face other challenges. With interest rates still at low levels, these products are having a harder time creating the excitement from the insurance company, agent and end consumer. Low interest rates have had a big impact on setting the indexing rates for these indexing strategies. Many companies over the last year had to decrease these options to their guaranteed minimums. Some even had to pull their products or refile them with new lower minimum guarantees. At the time of this article, interest rates have started to increase again which will relieve some of this pressure and allow the carriers to offer higher participation rates and caps on their strategies. This should allow these products to once again become more attractive.
When it comes down to the future of these products, it actually looks fairly bright. One of the challenges over the years has been the suitability issue. Some people have been placed in these products that in reality, should not have been. Whether it was their time horizon, lack of liquidity or simply not understanding what they were purchasing, there have been a number of people who have not benefited from these products. The insurance carriers and states are doing a much better job of making sure that the correct suitability questions are being asked and that the client does understand what they are purchasing and what the advantages and disadvantages of placing money into an indexed annuity are.
As carriers look for new ways to get premium on the books, we should see new innovations of these products that should benefit the policyholder even more. Options such as income riders and death benefit multipliers have been added to many of these products over the last several years. These riders offer the guarantees that clients are looking for. Another option that we could see would be to add a long term care benefit rider to these products. There are a handful of these annuity/ltc combo products available today but are on the traditional fixed side. As product development continues, we could eventually see this type of rider become available on the indexed side. With interest rates on the rise, this will help carriers increase their appetite for new business and will help with more product innovations. Only time will tell but for now, it looks as though the indexed annuities will remain a viable option for many people looking for an opportunity to earn a fair interest rate and also have the peace of mind knowing their money is safe. In any case, the next decade will be one of change and opportunity for the insurance carriers, agents and ultimately, the clients.
EIAs in the aftermath of 151A
by Anthony Compton
Anthony Compton is president of Gradient Insurance Brokerage, Topeka, KS. He can be reached at tcompton@gradientfg.com.
The last few years have been a whirlwind of change for the EIA. FINRA, formerly the NASD, got the ball rolling in August 2005 with the issuance of Notice to Members 05-50. This notice had nothing to do with whether an index annuity is a security product. Rather, it dealt with sales practices of index annuities and addressed the responsibility of broker/dealers (BD) to supervise the sale of these products. The notice possibly reduced the commissions that many insurance agents and registered representatives could earn on their index annuity business, required many of them affiliate with a different marketing organization, and limited their product offering to select carriers and products. At that time, we did not know this issuance was the start of a long and laborious journey for the whole financial industry.
On June 25, 2008, the Securities and Exchange Commission (SEC) proposed Rule 151A that would change the status of index annuity products from insurance products to registered securities products. There was a comment period for the general public to voice their opinion on the bill. By December 12, 2008, almost 4,500 comments were submitted, most in opposition to the proposed rule. Contrary to public opinion, the rule was adopted on December 17 with an effective date of January 12, 2011.
A lawsuit was quickly launched against the SEC, and industry leaders rallied in Washington D.C. to demonstrate why this was excessive and potentially harmful to the consumer. After hours of work, hundreds of thousands of dollars in expenses and a huge amount of effort, the lawsuit prevailed. On July 12, 2010, the court vacated Rule 151A which was a great stride for the fixed annuity industry. However, this ruling did not mean that the SEC could not try a similar ruling again. To lock the door and throw away the key on the issue, a legislative ruling was necessary. On July 21, 2010, President Obama signed the Financial Reform Bill, which among other things, prevents the SEC from asserting jurisdiction over fixed index annuities when the Harkin Amendment conditions are satisfied.
During the period of uncertainty, however, fear ran rampant. Insurance agents asked the following questions time and time again: "Will I need a securities license to sell index annuities?" "Will these products even exist in a few years?" "What should I offer my clients instead of index annuities?" "Am I going to have to join a BD?" While all of these questions were being asked and remained unanswered because of the uncertainty, another issue of equal dangerous was lurking behind the scenes.
The next big issue to face our industry is called "Source of Funds," and it attacks where money comes from to fund an annuity product. Funds for annuities comes from multiple sources ranging from certificate of deposits (CD), cash, replacements of existing annuities (both variable and fixed), mutual funds, stocks, bonds, brokerage accounts, and others. There is no issue with insurance agents using non-securities related products to fund annuity contracts. The issue arises from non-securities licensed individuals liquidating securities to fund fixed annuity contracts. The Investment Advisory Act of 1940 states the following regarding giving securities advice:
- You recommend the buying or selling of a securities product.
- You do it on a regular basis.
- You make a commission.
Insurance agents in the fixed annuity world continue to claim they are not giving securities advice because they don't make commissions when their clients liquidate their mutual funds. Therefore, they don't meet the criteria of the three factors listed above. However, many state insurance commissioners and regulators have the opinion that when an insurance agent makes a commission from selling a fixed annuity with the proceeds of a securities transaction, they are, in fact, being compensated on the sale of a security and are giving securities advice. Not all states view these transactions as giving unregistered securities advice, but more and more states are adopting this line of thinking.
In September 2009, The Arkansas Insurance Department issued Bulletin Number 14-2009 to all licensed life and health insurance producers and other groups. The subject was sales or investment advice related to securities products by insurance producers. To summarize: "The recommendation to replace securities such as mutual funds, stocks, bonds, and various other investment vehicles defined as securities under the Arkansas Securities Act is the offering of investment advice. It is unlawful to offer investment advice unless one is registered with the Arkansas Securities Department as an investment adviser or investment advisor representative. The insurance and securities commissioner intend to take action against insurance producers who improperly engage in transactions involving securities. This includes, but is not limited to, an order for cease and desist of your business and fines up $20,000 per violation."
If the regulation continues down the path we see today, fixed annuity producers will be required to have some form of securities license to fund a policy with a securities product. If you choose not to become securities licensed, regulators could limit your funding options to cash, CDs, or 1035 exchanges from existing fixed annuity contracts.
Demographic changes also play an important role in the future of our industry because 76 million baby boomers are nearing retirement. The boomer generation is often credited for the creation of mutual funds and qualified accounts. As they move from the accumulation to distribution phase, insurance agents will need to liquidate securities, when appropriate, and place the funds into index annuities.
To transition with the changing times, most insurance agents are taking a long, hard look at acquiring securities licenses. This can be a difficult decision and can also have a dramatic impact on an insurance agent's business. It is critical that you get sound advice and make the best decision for your business.
If you decide to obtain a securities license, you will have choices with regard to how your business is set up. There are two types of BDs: a retail BD and a custodial BD. A retail BD is the most common type and is where registered representatives affiliate once they take the appropriate securities test and become licensed. Being a registered representative allows you to buy and sell securities for a commission. The retail BD writes the rule book and decides how its registered reps play the game. They may have specific sales tools, E&O insurance, minimum production requirements, insurance product limitation and advertising restrictions with which its reps must comply. If you have been running your own business and making your own rules, this may be a very tough transition to make, especially if you are primarily interested in offering index annuities.
The second option is to work with a custodial BD. Custodial BDs simply execute the trades you request. To work with a custodial BD, you are required to take a securities test to become an investment advisor. Upon completion of the test, you can either set up your own registered investment advisor (RIA) firm, or you can affiliate with an established RIA firm. Having your own RIA firm affords you the freedom of running your own business, but you will also have additional responsibility. Choosing to work for someone else's RIA firm may put you in the same limited position as working with a retail BD.
Compensation is another factor to consider when working with a retail BD or a custodial BD. Retail means commission and allows you to make commission on the securities transactions you complete. Working with a custodial BD allows you to charge fees for your advice but does not allow for commission-based transactions. The goal of this model is to collect assets under management (AUM). Acquiring more AUM creates a larger pool of assets for fee collection. Growing your assets under managements gives you residual income while most commission-based sales create upfront income.
The opinion of the Baby Boomer generation should weigh heavily when determining what business model to pursue. Many surveys have been completed on what Boomers are looking for when choosing a financial professional, and the results show that Boomers seek unbiased advice and assistance. They also do not want to be sold anything; they want to choose to buy. As such, there has been a major movement toward the investment advisor model.
Some might say becoming an investment advisor in addition to being a commission-based salesperson is a conflict of interest or deceitful to the public. However, this is the way the financial industry has worked for many years. If you work at an established firm, such as Prudential, you could be licensed to sell insurance, trade securities for commissions and give investment advice all at the same time. Two of the three businesses provide the financial professional with commissions, and there is nothing misleading with this time-honored model. The most important thing is for the financial professional to be mindful of the consumer and disclose which business is conducting the business. Disclosing the fact that you have multiple firms upfront provides peace of mind through the appointment process and can also aid in building creditability.
Successful firms look to the future and make changes proactively rather than reactively. Instead of debating the validity of the statements of FINRA and the State Securities Administrators, choose to bulletproof your practice. Determine which securities path is right for you and go after it. Your business may just become more appealing to the lucrative Boomer generation.
Back to TopDouble-digit growth for VA sales in Q2
Variable annuity (VA) sales increased 11 percent in the second quarter of 2010, as compared to the prior year, to reach $35.5 billion, according to LIMRA's U.S. Individual Annuities Second Quarter 2010 Sales Report, which represents 96 percent of the market.
VA sales were 10 percent higher than sales in the first three months of 2010. For the first six months of 2010, VA sales improved eight percent compared to the first half of 2009, totaling $67.9 billion.
"After five consecutive quarters where VA sales were lingering in the $31 to 33 billion range, we are finally seeing signs of recovery as VA sales jumped more than $3 billion in the second quarter," said Joe Montminy, assistant vice president for LIMRA's annuity research. "In addition, there was broad market growth as most companies in the top 20 experienced VA sales growth this quarter, whereas last year we saw growth concentrated with the top five carriers."
Fixed annuity sales continued to decline in the second quarter, down 26 percent compared to the second quarter of 2009, when total fixed annuity sales were much stronger. However, compared to the first quarter, fixed annuity sales improved 13 percent to $21.5 billion in the second quarter of 2010 and $40.5 billion year-to-date.
After a slight drop in the first quarter of 2010, second quarter indexed annuity sales matched the record levels hit in the second quarter of 2009. Market volatility and the low interest rate environment continued to drive sales of indexed annuities, which reached $8.2 billion in the second quarter.
Book value annuity sales dropped 43 percent in the second quarter of 2010, totaling $8.1 billion but improved seven percent from the first quarter. Second quarter MVA sales of $1.6 billion were down 54 percent from second quarter 2009. Fixed immediate annuity sales were $2.1 billion and structured settlement sales reached $1.5 billion in the second quarter of 2010.
Total annuity sales were down seven percent in the second quarter compared to the second quarter of 2009 to $57.0 billion. However, total annuity sales grew 11 percent over the first quarter, marking the first quarterly increase in total annuity sales since the fourth quarter of 2008. Year-to-date, total annuity sales totaled $108.4 billion.
Back to Top
Taking stock in new annuity realities
by Douglas Dubitsky
Douglas Dubitsky is Vice President of Product Management, Retirement Solutions, for the Guardian Life Insurance Company of America. He can be reached at douglas_dubitsky@glic.com.
The meltdown of the world's financial markets in 2008 triggered a surge pushing annuity sales to record levels and helping them remain strong during 2009 and 2010 for companies who stayed the course in this product line. Now that we have more perspective on just what motivated our clients during the panic of 2008, it's important for advisors and producers alike to take stock of some new realities. Three stand out:
- The investing public has turned decidedly conservative and for good reason: Many of your clients saw large portions of their retirement savings wiped out in 2008. Consequently, they are more concerned about protecting their retirement assets than ever before. All of sudden, many have come to the realization that time-honored strategies to minimize risk are just as important as steps to boost investment returns;
- The notion that a one-size-fits-all annuity solution exists is clearly outdated. It's obvious that as life expectancy grows ever longer, the time has come for a new way of thinking, one that tailors strategies to meet individual needs one client at a time. Various stages in life and different circumstances require unique plans whether the focus is on asset accumulation, income distribution or wealth preservation over time; and
- Advisors matter now more than ever in the annuity marketplace. There are compelling reasons why your guidance is increasingly important: there are more products with a wider array of features on the market. Moreover, there are important investment, tax and planning implications associated with each strategy your clients implement and product choice they make.
High Stakes
Don't lose sight of just what's at stake: $22 trillion. That's the amount of wealth that LIMRA, an organization that tracks the life insurance industry, says is controlled by fully- and partially-retired households in the U.S. The implications for your business are staggering: LIMRA currently reports that two-thirds of the 18 million households with over $50,000 in annual income that are either in retirement or that will soon leave work will seek the help of a financial advisor in making key decisions about the money that will carry them through life.
An Anxious New World
In order to gain a better understanding of the new annuity marketplace, let's first recap just what 2008 did to the investment attitudes, outlooks and expectations of your clients.
Our society lives in a world where the Internet and cable television have put a conduit of financial information at our fingertips, 24 hours a day. Clients now must navigate a torrent of news on the economy, the stock market and their retirement accounts. The market crash of 2008 didn't help matters. Nearly every investor was negatively affected by the turmoil. As a result, Americans are more nervous as they prepare for and enter retirement in the current environment. Clients are more risk averse and highly skeptical. They're seeking help, not only a clear path to follow, but also the product and plan transparency that will help them track the steps they take to realizing their goals.
Remember, too, that retirement has changed considerably over the last 30 years. As recently as the 1980s, you could expect to leave work sometime between the ages of 62 and 65 and rely on a pension, Social Security and perhaps some savings to pave the way for the final 20 years of your life. Fast forward to 2010. The burden of retirement planning and saving has been passed on from companies to clients. Longevity has created new challenges. Americans must save for retirement and a longer life in retirement as well. Not only must individuals accumulate funds for their golden years, but they must also set goals for a lifestyle and a spending down of retirement assets to last during the remainder of their lives.
As a result, in just the last two years, we've seen a lot of conventional wisdoms return to fashion. Clients are once again concerned about risk management and guaranteed returns, the very features that are the bedrock of the annuity industry. It's no surprise, that in the current climate, LIMRA reports that there is a shift in thinking currently underway. The market is currently moving from traditional asset allocation models toward product anchored strategies with annuities playing a central role.
Brave New Market
It helps that the annuity market has expanded to meet the needs of a new generation. As recently as 10 to 15 years ago many producers seemed fixated on a single solution suitable to as large a client base as possible.
That's no longer the case. Fresh thinking has led the industry to realize the importance of providing a variety of guarantees applicable to a wide array of circumstances that touch our clients' lives. There are suites of annuity solutions now available offering clients a number of angles to meet their own individual needs. Equity based products help clients in their accumulation years and can offer customers a wide array of choices. Fixed annuities set out firm rates of return that clients can bank on. Single premium immediate annuities make it possible for customers to convert a portion of retirement assets into a steady stream of income to last their lifetime or a specific period of time, in a form of periodic checks.
Advisors, Producers take Center Stage - Together
It's also clear that your client base is leaning on you more than ever before. The investing public is looking to you for an understanding of the financial markets. They seek your knowledge of complex annuity products, contribution limits and investment choices. They want your guidance on how to set and attain lifestyle goals, how to build wealth, protect it and finally establish legacies. In some instances, partnering with a CPA/accountant or estate planner is the right direction to go in to address clients' holistic needs.
Remember that every annuity contract is a long-term commitment you're making with valued clients. Its underlying obligation can stretch over two or more decades or a lifetime. Think of it: you're selling a document that binds their future to your reputation and ultimately to the issuing financial institution as well.
That's where another important lesson from 2008 comes into play. The turmoil we witnessed shook the financial services industry to its very core. A number of publicly traded insurers came under pressure when their stock price plummeted. Many insurers sought and received government aid in order to weather the storm, and many changed their annuity strategy all together.
Now, more than ever, the financial security and experience of an annuity issuer have become critical factors. It's always been essential to check the financial solvency of an insurer by combing through ratings reports compiled by the big four agencies: A.M. Best, Fitch, Moody's and Standard & Poor's. Check for companies that have been in business for 50, 100 or more years as an indicator of sound stewardship during strong and weak economies alike.
Don't overlook product selection and back-office support. The best issuers should offer a holistic selection of annuities and riders that provide clients the most flexibility possible, from fixed, to immediate to variable products with a full range of payout options. A provider with a customer service desk that's available to help you and your clients with answers to many of their product-related questions is a plus, one that is a reassuring comfort for you and your client.
The Bottom Line
Make no mistake. The new realities now shaping the annuity market are an exciting development for clients, advisors and producers alike. They offer us all a formidable opportunity, a chance to provide security and peace of mind to a generation of Baby Boomers, a market of millions of people who are preparing for, approaching or even now flourishing in retirement. It's more than a chance to grow your advisory business, too. Beyond the prospect of additional business, remember that you can now boost the satisfaction you reap from guiding clients to the very best choices they can make. The moral of the story? Maybe it's a variation on, "Every cloud has a silver lining,", perhaps something along the lines of, "With the right steps, there's an ingenious way to bring security to those in need in even the most worrisome times."
Back to TopThe annuity market circa 2010
by Herbert K. Daroff, J.D., CFP
Herbert K. Daroff, J.D., CFP, is associated with Baystate Financial Services in Boston. He is a contributing editor for LIFE&Health Advisor. Daroff can be reached at hdaroff@baystatefinancialplanning.com.
What's happening with annuities?
Generally, variable annuity sales are down and fees for living benefits and death benefits are up. The "low-hanging fruit," the funds held by the most risk averse investors have been captured.
Interest rates are still low. However, since they are expected to begin rising (of course, we've thought so for the last three to five years), annuity sales are slower.
Stock markets are still volatile. However, since investors are coping better with the volatility and the scale of the volatility has diminished (at least right now), annuity sales are slower.
The major change in the annuity market is the significant reduction in the number of players. Fewer insurance companies are actively marketing or selling annuity products. Just as some investors remain on the sidelines, a number of annuity companies are on the sidelines right now. Just like investors, they are waiting to get back in. In 2010, three companies are capturing approximately half of all sales.
How has the continuing low interest rate environment impacted the annuity market?
I remain intrigued when I see people placing fixed deferred annuities instead of variable annuities with guaranteed minimum income benefit riders (or other riders). Why lock in a ceiling of some of the lowest interest rates in history (e.g., three to 4.5 percent), instead of having a floor of a higher interest rate (e.g., five percent)?
As stated above, too many investors still have too much in cash (on the sidelines). To them, it's not about risk tolerance, but their perceptions of stock market risk. So, they missed the large increases. Variable annuities with proper lifetime benefits hedge investment performance. It gives investors the "permission" to get back into the markets and then to "buy and hold."
What could be better than, "heads you win, tails you get five percent (higher or lower depending on product)?" I have often written about the way many investment advisors (analyticals) present the facts when it is emotions that are driving their client's behavior. The example I have used before is the plane that hits an air pocket and is losing altitude, "dropping like a stone." The passengers are screaming, "We're all going to die." An investment advisor holds up his laptop and starts presenting slide after slide showing how safe air travel is compared with others forms of transportation. Then one passengers chimes in, "Remember, past performance does not predict future results."
Annuities may be good, bad, and/or ugly, but especially for the most risk averse, those who run to the sidelines every time the markets decline, they serve as an emotional rescue for their behavior.
With interest rates this low, should someone's portfolio really be over-weight in cash and/or fixed income? I asked investors what they tend to do when the DJIA drops.
Some answer, "I buy more." So few are disciplined enough to recognize that buying low is still a good idea. As shoppers, instead of investors, they look for items on sale. Why not as investors, too?
Others answer, "I run to the sidelines." These are the best candidates for variable annuities with the proper lifetime benefit riders.
Some journalists argue that because of the low interest rates, investors should borrow against the value of other assets and invest more heavily in equity markets. They suggest that a growth portfolio shouldn't be allocated 70 to 80 percent in equities, but 120 to 130 percent in equities. I am not advocating this position. I do, however, caution those pre-retirement investors who are greater than 40 percent in fixed income, that because of today's low interest rates they are significantly hurting their retirement income potential.
What is the outlook for 2011 and beyond?
The answer is in the quantity and quality of "referrals" you get from your existing annuity clients. Most clients are very grateful to you when you review with them their annuity statements (compared to market volatility). Ask them, "who else do you know who would benefit from this?"
Also, I believe that variable annuities with the proper living benefit riders help clients invest more aggressively, especially in small cap and in international. All too often, clients invest for safety by increasing the debt or bond holdings in their portfolio. Over time, this strategy has served to lower the total value of the account and reduce retirement savings. Instead, pay a fee for safety and invest aggressively with a portion of the portfolio that should be designated for small cap and international. This amount, of course, will vary by client based on time horizon and risk tolerance.
The living benefits and death benefits on variable annuities enable clients to take equity risk with reduced equity volatility.
New products and riders are increasingly friendlier to Required Minimum Distributions (RMDs). In many products, once withdrawals begin (e.g., 70.5), the deferral bonuses stop (i.e., five percent guaranteed minimum income benefit, or GMIB, stops hedging the return). MetLife is planning to launch a new RMD Friendly Plus rider in July (when this article was submitted) that will continue to credit the difference between the RMD percentage and the five percent GMIB. So, when RMD percentages are lower than the GMIB rate (e.g., five percent), if you need to withdraw 3.6 percent for that year's RMD, the account will still grow by at least 1.4 percent. When the RMD is greater than the GMIB rate, the account will still grow by at least the RMD rate. So, if you need to withdraw six percent, the account will grow by at least six percent.
Another enhancement to lifetime income benefit riders (not necessarily available for lifetime withdrawal benefits) is what happens when the actual account value goes to zero. In most withdrawal benefits, the client may experience a reduction in income when the income reverts to the fixed percentage of the based (e.g., five percent). Some income benefits can result in an increase in income depending on the age at which the account value drops to zero (e.g., six percent at age 78, seven percent at age 82, eight percent at age 84, etc.).
What remain the biggest objections from clients?
In October 2008, I was involved in the debate that took place in Boston at the Financial Planning Association (FPA) national convention between John Huggard, a tax attorney and professor in North Carolina, who set out to write a book on why mutual funds are better than annuities, and ended up writing the opposite book, and Harold Evensky, a Certified Financial Planner Practitioner from Florida, who is a staunch advocate for mutual funds. Originally, John was to speak alone. But, a great deal of controversy arose regarding mutual funds vs. variable annuities. So, the debate was organized. In October of 2008, just as the stock markets were declining, the room was split about 50/50. A few months ago, FPA issued a variable annuity handbook. It is amazing what downturns can do to opinions. It is amazing what emotions do to behavior.
In his books, John compares what he refers to as the most common myths about mutual funds vs. variable annuities. Here are just a few:
FEES
His research indicates that the average mutual fund has approximately five percent in fees compared to the average variable annuity with 3.5 percent. Since these are averages, clearly there are mutual funds with both higher and lower fees and variable annuities with both higher and lower fees. With the advent of exchange traded funds (ETFs), the fee issue, I believe, is now clearly tilted in favor of the ETF vs. the variable annuity. But, that draws us to taxes.
TAXES during accumulation
For taxable (non-qualified) accounts, the ability to re-balance and accumulate without taxes is a clear benefit for the annuity. However, for both qualified and non-qualified accounts, the lifetime benefit riders provide an investment hedge that is more easily accessible to most investors than stock options and collars. The riders, not the annuities themselves, allow investors to remain invested.
TAXES during distribution
John's argument is that most retirees will pay approximately 15 percent of their income in income taxes, about the same as the current capital gains rate, and may be lower than the future capital gains rates. John cautions that ordinary income taxes should be referenced in total taxes paid, not in marginal income tax brackets. Someone making $100,000/year will pay approximately $15,000 in income taxes, regardless of what the last dollar loses in taxes.
LIQUIDITY
You can dictate liquidity by paying higher fees and having shorter surrender periods in most annuities. However, why pay the higher fees when the funds that you are allocating to the annuity should be for longer time horizons anyway. These retirement income funds should not require liquidity.
STEPPED-UP BASIS
Mutual funds held in a taxable account benefit from stepped-up basis (even in 2010, but potentially to a lesser degree, with modified carryover basis). Variable annuities and retirement accounts do not. However, they do benefit from the income in respect of a decedent (IRD) deduction, which does serve to level the playing field. The problem with IRD is that it gets spread out over the distribution period. So, for the typical "stretch" strategy, you don't get much benefit from each taxable distribution. However, don't forget about including life insurance in the portfolio to pay for the income taxes on retirement accounts and variable annuities, so you can benefit from IRD.
I love spirited debate. I am not in favor of closed-minds, like some advisors and journalists who believe that mutual fund fees, variable annuities, or life insurance cash value cause cancer. There is a proper place in clients' portfolios for all of the above, cash equivalents, individual securities, mutual funds, ETFs, variable annuities, fixed annuities, and life insurance.
Back to TopFirst quarter fixed annuity sales decline
U.S. sales of fixed annuities were an estimated $16.7 billion in first quarter 2010, according to data from the Beacon Research Fixed Annuity Premium Study. Sales were down 15 percent from fourth quarter 2009. Compared to the record-setting first quarter of 2009, results fell 52 percent.
By product type, estimated sales in first quarter 2010 were: book value - $6.8 billion; indexed - $6.7 billion; fixed income - $1.8 billion, and; market value-adjusted (MVA) - $1.3 billion. Results for all four product types were behind both the prior and year-ago quarters.
Relative to the previous quarter, MVA and book value annuities dropped 25 percent and 24 percent, respectively. Income annuities were down seven percent. Indexed annuity sales fell two percent. Year-ago results hit a record driven by book value sales, due to a flight to safety combined with a strong fixed annuity rate advantage. Compared to first quarter 2009, book value annuity sales were 64 percent lower. MVAs were down 80 percent. Income and indexed annuities declined six percent and five percent, respectively.
Book value annuities remained the dominant product type in first quarter 2010, but their 41 percent share was the lowest since third quarter 2007. The indexed annuity share of sales hit a 12-quarter high of 40 percent.
New York Life reclaimed sales leadership from Western National, which dropped to fourth place. Allianz moved to second from third place. Aviva jumped two notches to come in third.By product type, New York Life also led in book value sales, replacing Western National, and remained the dominant issuer of fixed income products. Allianz was again number one in indexed annuities. Hartford replaced American National as MVA sales leader.
The Allianz MasterDex X, an indexed annuity, was again the quarter's best-selling product. The New York Life Preferred Fixed Annuity took second place and was the only book value product in the top five. It was followed by two indexed products: American Equity's Retirement Gold and Aviva USA's BPA Select 12. The New York Life Lifetime Income Annuity came in fifth. First quarter results include sales of some 425 products.
Three of these annuities also led distribution channel sales. MasterDex X was again the top independent producer product. The New York Life Preferred Fixed Annuity was the new bestseller in banks. Among captive agents, the New York Life Lifetime Income Annuity took top honors.
Credited rates increased slightly from fourth quarter, but their rate advantage was narrower relative to the conservative alternatives. Top multi-year credited rates were in the four percent range on interest guarantee periods (IGPs) of seven years or more. Rates at or above the threshold five percent level were available only for the first year of some multi-year and renewal rate products. Book value annuity sales moved to shorter IGPs, apparently because buyers expected rates to rise and did not want to lock in the quarter's low credited rates for long periods. MVA sales shifted from the middle to both shorter and longer IGPs.
Back to TopSigns of a new market paradigm for 'risk-proofed' VA products
by Frank Zhang and Amit Ayer
Frank Zhang is an executive director in the Insurance and Actuarial Advisory Services practice of Ernst & Young LLP's Financial Services Office. He is based in New York City and can be reached at 212-773-5450 or at frank.zhang@ey.com. Amit Ayer is an executive in the Insurance and Actuarial Advisory Services practice of Ernst & Young LLP's Financial Services Office. Based in New York City, Ayer can be reached at 212-773-7391 at amit.ayer@ey.com.
Risk management strategies with variable annuity products
Sales of variable annuities (VA) declined in the third quarter of 2009, dropping 1.9 percent to $30.6 billion, compared to $31.2 billion in the second quarter of 2009 and down 17.3 percent from third quarter sales in 2008 of $37 billion. Although the demand appears to be slowing for VA products across the industry in total, there are some select examples of companies that have increased their sales and market shares during 2009.
The drop in sales can generally be attributed to the fact that prospective VA consumers have had less money to invest after the equity market decline. The precipitous drops in the value of traditional investments and 401(k) assets have raised the individual investor's level of awareness of savings and retirement products that offer downside protection. Today, VA distributors are trying to capitalize on increased consumer awareness of VA guarantees and how those guarantees might protect consumers against future market volatility.
There will be a greater shift towards "risk-proofed" VA products by various market constituents including consumers, distributors, rating agencies, Wall Street analysts and regulators. Some constituents will demand strong risk and capital management, while others will focus on increased levels of transparency regarding the VA writers' risk management methods.
Better educated consumers
Recently, a significant shift has occurred in the mindset of consumers. In the old market paradigm, consumers were primarily sold products with the richest benefits and the lowest fees. Now, consumers are beginning to focus on the stability and long-term security of the companies and products in which they are investing, looking more towards security.
VA writers with a strong brand and a reputation for financial stability have, more than ever, a greater opportunity to attract customers. Consumers, working with their distributors, are gravitating towards the larger VA writers, as the largest companies are considered more likely to meet their obligations either in volatile markets or in distressed economic markets. As a result, VA writers who are able to either capitalize on their reputations or who are able to create awareness of their approaches to assure financial stability will be able to gain market share. As consumers become more informed and work with more sophisticated advisors, this trend toward considering VA writers with staying power will only accelerate.
Distributors look under the hood
In the bullish equity markets of 2002-2007, VA sales steadily increased. Many distributors, including independent firms and captive agents, focused on sales volume and product "richness", paying little attention to whether the benefit guarantees were in-line with cost, or whether the risks that the companies were underwriting could properly be managed to enable them to deliver the guarantees promised over the long term. At the time, the risks to the insurers that were embedded in these products were not a major concern of, or focus for, many distributors.
Clearly, the financial crisis has changed this. In the new market paradigm, distributors have a reduced appetite for excessive or exotic guarantees in their line-ups, particularly if they are likely to be withdrawn, suspended or amended. The more sophisticated VA writers are questioning whether guarantees are appropriately priced for their risk and will remain sustainable. More distributors and broker-dealers are requesting insight into their suppliers' enterprise risk management philosophies, methodologies and measurements, specifically around the degree and type of risk built into product guarantees. For distributors, moving large product volumes is a necessity, but having a constantly changing line-up of products because insurers find them unsustainable can create compliance and reputational issues.
Strong risk and capital management with transparency
In an era of heightened risk consciousness, distributors are more likely to establish partnerships with VA writers who have adequate or transparent risk management frameworks in place. In order to maintain their reputations as trusted advisors, distributors want to ensure that the guarantees in VA products they sell to consumers will be fulfilled.
In the new market paradigm, distributors are now paying closer attention to the ratings of the VA writers as determined by the rating agencies, which, in turn, have strengthened their requirements in risk and capital management practices. As the financial solvency of several major insurers was threatened during the market crisis, there is a heightened level of inquiry regarding risk management practices, strategies and capital management.
To increase risk and capital management transparency, VA writers need to address risk in their marketing messages. Higher benefits and lower prices must be explained in the context of the overarching value of disciplined risk management and the meaning of security in the post-financial crisis world.
In the old market paradigm, rating agencies would accept at face value that robust VA risk management frameworks were in place at major VA writers. Now, those same rating agencies, Wall Street analysts and regulators will ultimately require a more transparent depiction of hedging strategies, hedging operations and trading platforms. In the most recent earnings calls of the major VA writers, analysts have been asking more and more probing questions into how companies manage these product risks and related capital requirements.
VA writers can improve risk management transparency by benchmarking and reviewing hedging and risk management programs against industry leading practices. To meet the evolving demands of consumers, distributors, Wall Street analysts, rating agencies and regulators, companies should regularly review their hedge programs and conduct frequent independent assessments of their risk management practices. VA writers should align their products and risk management strategies with this paradigm shift exhibited by their customers and distributors.
Risk-proof the VA guarantees
More than ever, consumers will simply want their company to be there when the time comes to pay out any potential guarantee claims from their VA policies that may last many years. In today's new market paradigm, there is a greater need than ever for risk-proofed VA products to promote a sustainable market going forward. Robust risk and capital management frameworks by the VA writers will serve well all the constituents in the VA industry.
Back to TopLongevity Annuities: Microsoft at 80 cents per share?
by Laura Hahn
Laura Hahn is Managing Director, Annuity Center for The Marketing Alliance (TMA), St. Louis, Mo. She can be reached at 314-275-8713 or lhahn@themarketingalliance.com.
If only we could have seen the future in 1987�
I read an article recently announcing a very sad milestone: the second oldest person in the world (and the oldest in the United States) died March 7, 2010 at the tender age of 114 years and 294 days. Ironically, another young at heart passed away on the exact same day. She was only 113 years and 342 days young.After learning this news, I thought of an industry tag line that we see all too often: "Guaranteed Income for Life." Imagine if these two individuals, both were women, had purchased a fixed annuity when they were just 55 years young. Think about it. No matter how you do the math, I believe that adds up to a great return of income for life.
Granted, we cannot all be as fortunate as these two ladies and have such a long and enjoyable life. But we should agree that the aging trend is certainly shifting, providing us with a greater chance of matching the longevity of the oldest person in the United States than ever before. If we have our health and an occupation we truly enjoy, we may not want to retire at 60, 65 or even 70-years-old, but don't most of us want the freedom to be able to have that choice?
Had I known that Microsoft would have the success it has had I would have bought shares at 80 cents. If I have a chance to live to 114-years-old (ok, realistically for me probably 99-years-old) isn't guaranteeing my income a good investment? After all, living a long, healthy life should be a good thing. I don't want my income to shut down before I do!
The Question to Ask
Ask your clients this question: Can you give me two reasons why you would not want to live as long as you possibly can? If they are honest with you, their answers just might be "I'm no longer in good health and I have no money left," and probably in that order. We can't help with the first answer but we have an obligation to help with the second. Fortunately, our industry continues to provide us with options to help us fulfill this obligation.
Longevity Annuities
One of the options is a longevity annuity. They are a good alternative for clients who would be reluctant to annuitize an immediate annuity or clients who are concerned about putting a large portion of their assets into an immediate annuity and no longer have the ability to utilize those assets if an emergency were to arise. They can even help with the number one objection many clients have for purchasing an annuity, the flip side, what if they die too soon after buying an annuity and they have given up a larger portion of their assets?
Longevity Annuities (also known as Advanced-Life Delayed annuities) allow your clients to protect against outliving their income with typically less money upfront due to the fact that these annuities don't start paying out for an extended period of time, such as 20 years.
Like all products, a longevity annuity is not for everyone. They are designed for your clients who expect to live a long life, understand buying future income at today's prices and/or don't want to invest a larger portion of their assets that may be required to purchase other types of annuities.
Your clients should also understand that there is a trade off. If they don't live to the age at which payments start there is no payment to their heirs or beneficiaries. These clients are making a buying decision with a smaller portion of their assets on the belief they will live for this period of time and they want to invest in that possibility. They enjoy life today and the use of their assets but they also want a back-up plan.
Think about your clients who are reaching or have just entered retirement. They may not want to admit it but more than once the thought has probably crossed their minds, "Am I going to be ok?"
Approaching Retirement with Confidence
Let's face it, retirement is a life changing event, no different than marriage, the birth of a child or a loss. As with any change, we have uncertainties. Whether your client sees retirement right around the corner or has already made the turn, chances are they are feeling uncertainty over what the future will hold. These clients probably would not feel completely secure with what they may view as giving up a large portion of their assets when they really don't know if they will need it. After all, they have no real experience yet in the retirement world. Because of the work we have chosen to do, we have the unique opportunity to educate these clients and provide them with alternatives and options to securing their lifestyle during years that should be "golden."
Yes, I think most of us who didn't buy shares of Microsoft at 80 cents sure wish we would have. While we may not be able to guarantee that our clients will live a long and healthy life, we can help them to be ready if they do earn the distinction as one of the oldest persons living. We can also remove the "if I had only known" about guaranteed income. Surely your clients can comprehend that if they were to be this successful at living a long life they'd want to do more to guarantee that their income would last as long as they do.
Another saying strikes me; while you can lead a horse to water, you can't make him drink it. Consider this: we all know what will happen to the horse if someone doesn't get that horse to drink. We have all heard the statistics by now: the aging boomers, the assets they hold, the impact of the economy on retirement dreams and so on. It has never been more clear that our role, our profession, our obligation is to save one financial retirement life a day. Even our own.
Back to TopVariable Annuities inch upward
After a decline of 26 percent in the first six months of 2009, variable annuities (VA) were only down 18 percent for the year, as quarterly VA sales slowly improve from the first quarter.
According to LIMRA's U.S. Individual Annuities quarterly sales survey, VA sales improved slightly in the fourth quarter as compared to the third quarter, up three percent to $32.6 billion but were down three percent when compared to the fourth quarter of 2008. VA sales totaled $127 billion.
"The last time VA sales were at this level was in 2003, at the end of the last financial crisis," said Joe Montminy, assistant vice president and research director for LIMRA's annuity research.� "VA sales experienced significant losses from the third quarter of 2008 through first quarter 2009 and while we are seeing VAs begin to recover, the recovery is slower than expected. We attribute this partly to a decline in 1035 exchanges."
Overall individual annuity sales fell in the fourth quarter, down two percent as compared the prior quarter, to reach $53.3 billion. This is a 22 percent decline from the fourth quarter of 2008. Total individual annuity sales declined 11 percent in 2009, to reach $234.9 billion.
In fourth quarter of 2009, fixed annuity sales continued to decline, down 10 percent as compared to the prior quarter and down 40 percent from the fourth quarter of 2008, where fixed annuities experienced incredible growth. Fixed annuity sales totaled $20.7 billion in the fourth quarter and $107.9 billion for the year, which was a one percent decline from 2008. LIMRA predicts fixed annuities will remain depressed as long as interest rates remain at current levels, CDs are just too attractive in this environment.
In 2009, indexed annuities had a record year, increasing nine percent, reaching $29.4 billion, as compared to 2008. Indexed annuities performed very well throughout the year, with a record-high in the second quarter. Indexed annuities fourth quarter sales were down five percent from the third quarter, totaling $6.9 billion.�
For the third consecutive quarter, book value declined as compared to the prior quarter, down 10 percent from the third quarter and 43 percent as compared to the fourth quarter of 2008. For 2009, sales of book value annuities are up two percent benefiting from a very strong first quarter.�
Fourth quarter MVA sales were down 35 percent from the third quarter and declined 80 percent as compared to prior year. 2009 MVA sales finished 20 percent lower from 2008 totals.
Back to TopGoing Long
How longevity impacts the annuity market
by Herb Daroff
Herb Daroff is associated with Baystate Financial Services in Boston. He is a contributing editor for LIFE&Health Advisor. Daroff can be reached at hdaroff@baystatefinancialplanning.com.
Prior to the most recent stock market turmoil (not to be confused with the turmoil of 1987 or 2001 or, for that matter, 1929.) annuities had more critics than proponents. Obviously, critics have very short memories.
After the financial debacle of last year, annuity advocates came out of the walls. Clients and their advisors wanted fixed pension incomes to replace market fluctuations. These were the same people who were unimpressed with 10-12-15 percent returns in the roaring 1990s expecting 20-30-40 percent on every stock they day-traded. Remember them?
While a fixed (and low) interest rate may appeal to some retirees, others with longer time horizons recognized the problems of reduced purchasing power with fixed income net after taxes and inflation.
KEY PLANNING CONSIDERATION
Loss of purchasing power is more critical than loss of principalThey discovered variable annuities with guaranteed income benefit riders and guaranteed withdrawal benefit riders. These provide a low interest rate floor instead of the low interest rate ceiling of fixed annuities
Last year, for those clients who did not have the investment hedges provided by variable annuity riders, we were trying to defend our portfolio losses. I did not get into this business to help clients lose less. Clients who thought their risk tolerance was seven to eight out of 10 became "recovering sevens". They realized that their risk capacity was more like a three. These investors all wanted to steal second base, but with one foot firmly planted on first.
Those investors with sufficient funds covered by variable annuity riders did not lose "retirement income" value. So, as the demand for variable annuities with guaranteed riders increased, the supply was severely decreased.
The insurance companies offering these variable annuities and their riders became increasingly concerned about the higher interest rates they had guaranteed. The spread between the fair market value of the accounts and the "retirement income" value had increased significantly. As a result, they:
- Extended the frequency between resets (e.g., quarterly to annually), the spread between fair market value and "retirement income" value;
- Increased the fees for these benefit riders (e.g., from 50 basis points to 150 basis points, 0.50 percent to 1.50 percent);
- Provided less flexibility in asset allocation choices (e.g., from 100 percent in small cap international to at least 15 percent in bonds, 15 percent in large cap value, etc.);
- Reduced their exposure per client (e.g., limiting the amount that each individual client can contribute to an annuity to $1,000,000); and Lowered the guarantees (e.g., from six percent to five percent)
NOTE: There are exceptions-companies who have maintained low costs and frequent, even daily, resets.
There are also far fewer providers offering these products.
Why are annuities increasingly more important? People are living longer. A long time ago, the concept of retiring at 65 was to enable a worker to enjoy a few years of leisure retirement, before dying by 67 to 75. Social Security was based on statistics like that. You remember Social Security, the largest unfunded pension liability in the world. Today, insurance company mortality tables run to 125. The required minimum distribution tables for retirement income run to 115. Many people will be retired for a longer period of time than they worked. Therefore, the most important financial planning objective for many is to make sure that their wealth doesn't go to zero before their blood pressure does.
Why are variable annuities with income and withdrawal riders increasingly more important? Stock markets stumble from time to time. Interest rates are at all time lows. Albert Einstein once said that the greatest force in nature is compound interest. However, at one to three percent it's not all that powerful. And, bank or money market interest is better than negative returns in an investment portfolio.
So, for investors interested in Aggressive Growth with Conservative Risk (see above, stealing second with one foot firmly planted on first), the hedges provided by variable annuity riders should be considered.
INCOME BENEFITS
Generally speaking, a guaranteed minimum income benefit:
Protects lifetime income;
Interestingly enough, the typical variable annuity may never actually payout an annuitization of principal and interest. Instead you can turn on the faucet and receive five percent or six percent or seven percent of the greatest of the account value, the highest reset value, see below, or the five to seven percent compounded value.
Captures market gain;
The account value is reset periodically, which varies from daily to weekly to monthly to annually on the anniversary of the contract. However, you may be restricted on how your account is allocated between various investment classes. Some products give the right to re-allocate the asset allocation to the insurance company based on a series of triggering events, which may be beneficial to the annuity owner. It is certainly beneficial to the insurance company who uses this right to manage its risk, the spread between the fair market value of the assets and the "retirement income" value.Manages market declines;
Basically, heads your win, tails you stay the same and actually grow by five to seven percent. Your "retirement income" value will never be less than the original amount contributed less withdrawals.
Provides legacies to your heirs.
Annuities have death benefits. The income can continue to your surviving spouse and issue or any other beneficiary.
Who wouldn't want that? At any price? Oh, there's the rub! The cost of these riders ranges from 50 basis points (0.50 percent) to 150 basis points (1.50 percent), or even higher. And, this fee is on top of the investment management fees and other administrative expenses. Clearly, the prospectus must be read (studied) before making any decision, and compared with other products. Then, have a referee (CPA, Attorney, Financial Planner, etc.) help you decipher the differences so that you can make an intelligent decision.
I recall a client of ours who contributed $100,000 to a variable annuity on September 1, 2001. After September 11th that value was much smaller. I believe that the anniversary value September 1, 2002 was something like $65,000. However, the "retirement income" base was $106,000 (six percent increase over the initial contribution because of this rider). And, the $106,000 income base is NET of all fees and expenses.
This worked in 2009, too.
WITHDRAWAL BENEFITS
Generally speaking, a guaranteed withdrawal benefit:
Maximizes immediate income;
You withdraw seven percent, for example, for a period of 14-15 years = 100-105 percent of the principal sum at the beginning of the withdrawal, regardless of market performance. So, this rider guarantees principal.
Captures market gains;
If the market never goes up again, you are guaranteed to receive your initial contribution back. However, if the market value is higher than the originally contributed amount on a reset date, then you lock in that new value and will receive seven percent for 14-15 years of that once you turn on the withdrawal.
Pursues investment growth; and
The flexibility to select individual assets or asset classes is generally broader in the withdrawal benefits than in the income benefits.
Protects your heirs.
Remember, annuities are only a part of a well diversified portfolio. Clients should have four accounts:
- Traditional retirement accounts - funded predominantly in corporate bonds, works best when tax brackets are low.
- After-tax portfolio - funded predominantly in large cap value stocks, works best when stock markets are high.
- Variable annuity - provides a stock market hedge, invested aggressively, works best when stock markets are low.
- Life insurance - provides a Roth look alike account (cash value) and the funds to pay the income taxes on the annuities and retirement accounts (death benefit), works best when tax brackets are high.
In Search of Safety
As Americans re-think their investment strategies,
new annuity designs build in stronger guarantees
by Gary C. Bhojwani
Gary C. Bhojwani, President and CEO of Allianz Life Insurance Company of North America. He can be reached at gary.bhojwani@allianzlife.com.
For most consumers, the prospect of retirement planning is not the same as it was before the financial meltdown that began in 2008. Everyone's trying to make sense of dramatic changes in the financial landscape, especially equity market losses, significant declines in 401(k) values, and low returns on fixed-rate instruments such as CDs. Consumer confidence is improving, but understandably low. Unemployment and home foreclosures now appear on the list of worries, often ahead of retirement savings.
My company, in conjunction with Synovate Research, conducted a recent survey about New Year's Resolutions. It shows Americans continue to have mixed feelings about their own financial future, as well as the country's. When asked what type of expert professional service they would most like to use, 40.7 percent chose a financial expert compared to only 27.3 percent who said they wanted personal trainer. Financial guidance was of particular importance to the youngest and oldest generations surveyed, with 43.4 percent of the 18 to 24 group choosing financial expert, and 42.4 percent of those 65 and up.
In the past, Americans relied on retirement plans comprised principally of Social Security, pension funds, savings and investments, such as traditional stock market funds. For many, a plan made of this mix is no longer valid. The types of changes Social Security will undergo in the future are unclear and most pensions have disappeared. Recent stock market declines have given investors a new appreciation for the risk of traditional stock market investments. Americans are realizing that guarantees and principal protection are important components of a solid retirement plan.
As a result, people are scaling back spending and managing finances more carefully than ever, looking for strategies to keep them sheltered from the storm. In October 2008, 35 percent of affluent retirees said that a guaranteed income payment stream is the single most important factor when choosing a retirement solution, up from 23 percent just two months earlier.
In these turbulent times, reliability is refreshing rather than boring. Before 2008, Americans were energized by the growth in the stock market. Now more people are concluding that a significant portion of savings should be protected with a guarantee, even if that means more moderate growth during market highs.
How do we help mitigate the risks? There is only a 0.9 percent risk that we will die in a year. So we work out, we eat healthy, we don't want to die. To transfer some of that risk away, we purchase life insurance.
While there is only a 1.2 percent chance of an automobile accident, we drive safely, we wear seatbelts, and we purchase auto insurance.
To mitigate the risk of losing our home we have smoke detectors, and alarms. We purchase home owners insurance to mitigate the risk of this loss.
Loss of market value in any one given year was 28 percent. Certainly much higher than any of these other areas. We are purchasing life insurance, auto insurance, home owners insurance to transfer risk, why not consider, for a portion of our assets, the ability to transfer some of that risk from our portfolios with the purchase of an annuity. Optional protection benefits offered in annuities help provide the protection and can be purchased for an additional cost. Product guarantees are based on the financial strength and claims-paying ability of the issuing company.
Annuities: smart financial tools for an unpredictable future
In this environment, annuities are garnering more positive attention. As the only financial instruments that provide guaranteed income for life, annuities are unique. But consumers unfamiliar with annuities may wonder: "Is an annuity right for me? What should I buy? What should I know?"
While many people are focused on asset accumulation, our American Legacies Study shows that most want more than just a "pile of money." They need an effective means to create secure income for what may be many years of retirement, with all manner of risks and uncertainties. When making any type of change to a financial plan, consumers should step back and ask fundamental questions about whether the financial plan meets their specific short-term and long-term goals. The first step is to work with a trusted financial professional to guide a balanced approach to the individual's needs and wants.
Today's economic conditions have underscored the importance of a diversified financial plan that may include annuities, which offer guaranteed income for life. Annuities can help reduce market risk. They offer unique protection features, and are good long-term financial instruments. In any economy, stable or otherwise, a product that offers guaranteed lifetime income is very appealing.
Annuities in a life-stage context
Many criteria play into financial planning decisions: age, net income, assets, monthly expenses, and beneficiaries, but age is one factor that can help define what's appropriate.
Seniors - Those nearing retirement may want to put a larger percentage of their assets in products that have guarantees, as long as they are comfortable with contract restrictions that may affect the timing and amounts that can be withdrawn or distributed. For individuals who are in their 60s or older, the ability to leave some assets untouched may make annuities a smart choice. In fact, 78 percent of owners of nonqualified annuities intend to use their annuities for retirement income. The annuity will benefit from tax deferral and the death benefit may allow customers to pass along funds to their beneficiaries.
Middle-aged people - Forty and 50-year-olds with a longer term horizon should consider that annuities have a favorable tax status and are good long-term financial instruments. If you fall in this age group, evaluate the growth potential of a tax deferred vehicle versus a taxable one.
Younger people - For younger people, those in their 20s and 30s, saving money in a systematic, disciplined way is an important strategy. Many younger people do not have a defined benefit plan and annuities may be a good alternative because of their ability to generate tax deferred income. If you're in your 20s or 30s, making an annuity part of your financial strategy, along with IRAs and 401(k)s, may be a good first step towards a more secure financial future.
Next Steps
The new economic environment has forever changed how Americans evaluate risk and acceptable returns, and a long-term financial strategy is more important than ever. Because annuities can offer a guaranteed income for life, they can make a sound addition to a diversified plan for a consumer in any stage of life.Variable Annuities: Still ideal for Boomer retirement income
by Terry Mullen
Terry Mullen is President of Sun Life Financial Distributors, Inc., in Boston. He can be reached at terry.mullen@sunlife.com.
Variable annuities (VAs) are gaining more widespread respect. The guarantees that critics said were not worth the added basis points have kept annuity investors above water. Step-ups to help clients generate sufficient retirement income have helped lock in account gains. And bonuses ranging from five to seven percent have, in hindsight, helped investors beat the market while keeping their retirement income safe from market risk.
You would think that would soothe the naysayers, but new criticisms have emerged: bonus rates are shrinking, guarantees are not as good as they were. Despite this new rhetoric, VA sales are rebounding. According to the Insured Retirement Institute, VA sales for the second quarter were $31.8 billion, up from $30.4 billion in the previous quarter. Second quarter 2009 net sales were $6.1 billion, compared to first quarter net sales of $5.1 billion and combined net VA assets rose to $1.19 trillion.
The underlying need for, and strengths of, VAs have not changed. We are still approaching one of the most significant demographic shifts in our history with the forthcoming Boomer retirement wave. This is a population with unique financial needs that a VA with a living benefit can help meet. Even with their recent modifications, VAs offer tremendous value to this vitally important market segment, and the recent sales numbers illustrate that advisors and investors understand this opportunity. Now is not the time to scale back VA sales; if anything, their performance during the current financial crisis helped save Boomers millions and validates their importance.
VAs: Still a unique product
The VA arms race is over and carriers have revised their products to reflect the new economic and market conditions. So, why are VAs still worth it, even if investors can't get the same bonuses and deals that were available just a few months ago?
Because no other product provides the same protection against inflation, longevity and market risks that a VA does. With the new emphasis on financial protection and guaranteed retirement income, the outlook for VAs has never been better. Even with their recent modifications, living benefits can give investors a comfort and predictability that is reassuring in the current environment.
Many investors, concerned about the market, have fled into safer investments like CDs. CDs are selling well now and can be the right product in some instances, but locking an investor in a long-term CD with current interest rates can be a disadvantage. Conversely, the investors who have recently purchased VAs may be getting reduced benefits from a year ago, but they're buying an equity-related product that has an excellent potential to rise with the market.
With an aging population that has endured significant losses in their defined contribution plans, and a public that has a tenuous view of the viability of Social Security, VAs remain the only product that can guarantee lifetime income with downside protection.
Selecting a carrier in today's landscape
The other major change in the landscape is how advisors and investors select a VA carrier. In the recent past, both parties largely selected a carrier based on name recognition, the product range and perhaps other items like compensation. Some carriers have faced financial difficulties, and investors are now asking more questions about how VAs and their guarantees work. With this in mind, there are new attributes carriers need to have to stand up to investor and advisor scrutiny.
Product features remain an important factor. Unlike the arms race mentality of a couple of years ago, the scaling back of many features, like deferral bonuses and quarterly step-ups, has made it a bit easier to survey the carrier landscape. Make sure to compare items like age-tiered withdrawal percentages, deferral bonuses and annual costs carefully. Also review the subaccount options carefully to make sure there are sufficient investment options in each VA, they are well-ranked by ratings agencies and the asset allocation models are appropriate.
A new emphasis is financial strength. Previously, reviewing items such as carrier credit ratings, investment portfolios and 10Ks was an afterthought, if it was done at all. Given the stress in the financial sector, this is now extremely important. Investors want to be sure that the insurance company is still going to be around in 10 or 20 years when they decide to annuitize or start taking income withdrawals. Advisors want to be sure the carrier has a diversified portfolio and does not have significant exposure to structured products or risky investments. With a �flight to quality� underway, financial strength ratings from agencies like A.M. Best and Moody's have moved to the front of the line in importance.
The VA world has certainly changed, but the insurance industry remains financially strong and well-poised to capture market share as the needs of the Boomer population's shift from retirement savings to retirement income. The demographics and fundamentals that drive the product need are unchanged, and VAs remain an excellent choice for investors who want a guaranteed retirement income they can never outlive. The key for advisors is understanding that VAs continue to be a superior choice for most investors, and how they judge carriers needs to adjust in light of current economic and market conditions.
Back to TopFixed annuities sales rise in Q2
U.S. sales of fixed annuities reached an estimated $27.8 billion in second quarter 2009. Quarterly sales were 10 percent higher than those of second quarter 2008, but 20 percent below the previous quarter. On a year-to-date basis, total market sales were an estimated $62.6 billion, 39 percent above first half 2008.
By product type, data from the Beacon Research Fixed Annuity Premium Study estimated sales in second quarter 2009 were: book value - $14.0 billion; indexed - $8.2 billion; market value-adjusted (MVA) - $3.5 billion, and; fixed income - $2.2 billion. With the exception of MVAs, these estimates reflect increases from second quarter 2008 in all product types.
Indexed sales grew 20 percent, while book value and fixed income annuities were up 10 percent and two percent, respectively. MVA sales fell five percent. From the prior quarter, indexed results improved 16 percent. This brought the indexed annuity share of sales to 30 percent, reversing a five-quarter decline but still below 2007 levels. Income annuities were up 12 percent quarter-to-quarter. MVAs dropped 47 percent, while book value products fell 27 percent.
Estimated year-to-date product type sales were: book value - $33.2 billion; indexed - $15.3 billion; MVA - $10.0 billion, and fixed income - $4.1 billion. Relative to first half 2008, there was double-digit growth in all product types except fixed income. MVAs were 68 percent ahead, book value products were up 48 percent, and indexed annuities advanced 22 percent. Fixed income sales rose four percent.
New York Life advanced to first from second place to reclaim sales leadership from MetLife. Aviva USA moved up a notch to replace it in second place. Allianz jumped four spots to come in third. AEGON/Transamerica advanced to fourth from fifth place. American Equity rejoined the top 10 and came in fifth.
In sales by product type, American National was the new MVA sales leader, replacing MetLife. New York Life remained tops in book value and fixed income annuities, and Aviva continued as the leading indexed annuity issuer.
New York Life took top product honors with its Preferred Fixed Annuity (a book value product). Allianz rejoined the top five with MasterDex X (an indexed annuity) in second place. Another New York Life book value product, NYL Fixed Annuity, moved down a notch to come in third. Income Select Bonus, an Aviva-American Investors Life indexed annuity, remained in fourth place. Coming in fifth was Pacific Life�s new book value product, Pacific Explorer. Second quarter results include sales of some 410 products.
Two of the top five annuities led sales in a distribution channel as well. New York Life had the top bank channel product once again, with NYL Preferred Fixed Annuity replacing NYL Fixed Annuity. The Allianz MasterDex X became the new bestseller among independent producers. RiverSource Life�s Rate Bonus 1 (a book value annuity) remained the leading captive agent product. MVAs led sales in all three broker-dealer channels. American National�s Palladium MYG reclaimed top honors in the independent B-D channel. Pacific Life�s Pacific Frontiers was the new wirehouse bestseller. MetLife Target Maturity continued as the top product in the large/regional B-D channel.
Credited rates were low and declined somewhat over second quarter. It was increasingly difficult to find annuities crediting at the threshold five percent level. The highest available rates were found either on renewal rate products with shorter initial interest guarantee periods (IGPs) or on longer non-renewal rate terms.
Back to TopBack to Top-->