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Annuity Sales

Annuity Sales

Total annuity sales for 2011 were $231 billion [$155 in variable annuities (VAs) and the balance in fixed-rate annuities]. Of this $231 billion total for 2011, $223 billion was invested in deferred annuities and less than $9 billion to immediate annuities. The vast majority of variable annuity sales are from 1035 exchanges (not new money). The ratio of net flow to total sales for 2011 was under 18%. Variable annuity net flows (new money) were < $28 billion of the $155 billion in total sales (new money + exchanges). In 2002, total net assets of annuities (fixed and variable) totaled $1.2 trillion, $2 trillion in 2007, and $2.2 trillion ($1.5 in VAs and $0.7 in fixed) by 2011. The table below shows the top 10 VA sellers for 2011 (source: Morningstar).

2011 Variable Annuity Sales [In Billions]

Top 10 Sellers

Company                    

Total Sales  

% of 2011 Sales    

MetLife

$29.5

19%

Prudential Financial

$20.2

13%

Jackson National

$17.5

11%

TIAA-CREF

$13.5

9%

Lincoln Financial Group

$9.4

6%

SunAmerica/VALIC

$8.0

5%

Nationwide

$7.7

5%

AXA Equitable

$7.0

5%

Ameriprise Financial

$6.4

4%

AEGON/Transamerica

$5.4

3%

Fixed-Rate Annuities

Although variable annuities have been more popular than fixed-rate annuities in recent years, fixed-rate annuities are an excellent alternative for the conservative portion of a client’s portfolio. Most advisors tend to use government securities or bank CDs for the stable part of the client’s investments, but fixed-rate annuities offer a number of advantages: [1] higher interest rate, [2] superior tax planning, [3] zero standard deviation, [4] option of converting into a lifetime income, and [5] no daily volatility.
 

Variable Annuities

The majority of variable annuities sold include some type of living benefit. The two most popular living benefits credit 5-7% annually to the client’s account or guarantee a 4-7% yearly income stream. With most living benefit products, the accumulation period looks appealing. The advisor should carefully study and compare contracts during the distribution period; areas to focus on include: 
 
[1] Whether or not the contract must be annuitized (in order to take advantage of the living benefit).
[2] Minimum annual income after 5, 10, and 20 years of growth.
[3] How long a contract must be held before it can be converted to income.
[4] Can the “income spigot” be turned “on” and “off” for any given year.
[5] If annual income is based on age, is there an age “set back” (a negative for the investor).
 

Living Benefits

The advisor should find out if annuitization is required before periodic income commences. For comparison purposes, the advisor should shop a few variable annuity living benefit providers and request a hypothetical printout (e.g., $100,000 invested in an S&P 500 type subaccount, showing projected and guaranteed payouts after holding the contract 1 day, 1 year, 5 years, 10 years, and 15 years).
 
Some living benefit products require a 5-15 year holding period before the benefits can be realized. Other contracts give the investor the option of taking a guaranteed income stream on day one or at anytime in the future without annuitization. A few insurers allow the contract owner the option of taking out 4-6% on a year-by-year basis; for those years when income is not taken out, the contract’s living benefit grows by 4-6%. 
 
Finally, some insurer’s use an age “set back” when lifetime income is requested. This adjustment means the investor’s life expectancy is increased by 5-10 years (from what life expectancy tables show), resulting in a lower annual payment to the investor (good for the insurer, bad for the client).
 
 

 

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