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  • Quick Takes On The Annuity Scene

    September 25, 2013 by Linda Koco

    The past few weeks have percolated with news on living benefits, annuity flows, deferred income annuities and more. Here are some short takes on that. We’ll do some up-close looks later on.

    Living benefit riders do impact client behavior: Before starting lifetime income from fixed indexed annuities, policyowners who have a guaranteed lifetime withdrawal benefit rider in their contract take partial withdrawals less frequently than policyowners who do not have such a rider, according to a Ruark Consulting report.  And those who do take partial withdrawals before starting lifetime income tend to take out less money than owners who have no such rider. Annuity professionals might expect that, since those owners will expect to take their guaranteed withdrawals in the future and might be disinclined to do so in the moment, so to speak. Like, who wants to wreck their guarantee?

    The Ruark study blows that expectation to the wind, at least partially. It found that when policyholders did take partial withdraws before starting their lifetime income, the withdrawals were at “levels that are detrimental to the guarantee.” So apparently, when policyowners want or need the money, they’re going to withdraw the amount they want or need, regardless of the guarantee. Ruark said its staffers and its own fixed indexed annuity clients were “surprised at the limits of the rider’s effect on overall withdrawal behavior.” They’re not alone.

    Annuity flows up in first half: That’s the word from the Insurance & Retirement Services (I&RS), a business of the Depository Trust & Clearing Corp. (DTCC). In the first six months of 2013, more than $85 billion in annuity product transactions were cleared by DTCC’s National Securities Clearing Corp. That’s up from nearly $79 billion in the first half of last year, according to the I&RS Annuity Market Activity Report.

    The 2013 numbers reflect a somewhat larger group than last year. For instance, they represent data from 112 insurance companies (43 parent or holding companies), 128 broker-dealer distributors and 3,236 annuity products (mostly variable but some fixed). By comparison, the first-half data from last year covered 108 carriers (43 parent or holding companies), 116 broker-dealers and 3,202 annuity products.

    The data should be of interest to independent producers for three reasons. First, they represent transaction activity for a large swath of the annuity market. Second, the broker-dealers participating in the study are, according to I&RS, “strongly concentrated in the non-proprietary channel.” The non-proprietary channel is where a lot of independent producers place their business. Third, the first-half numbers include June, which was a period when annuity inflows actually decreased — by 9.7 percent, according to I&RS, from $7.9 billion in May to $7.2 billion in June. That could be worrisome except that June also saw annuity outflows decrease — by 11.7 percent, to $6.4 million in June from $7.3 billion in May. That means that the net flows that month were up despite the lower inflows. Perhaps annuity conservation efforts had an effect?

    The DNA on DIAs:  Deferred income annuity (DIA) sales in second quarter 2013 were up by almost 40 percent from first quarter, according to Jeremy Alexander, chief executive officer of Beacon Research. He speculates this is due to “continued demand for retirement income, larger payouts and new product introductions.” The marketplace is growing, too. For instance, in early September, Lincoln Financial Group launched its own DIA, the Lincoln Deferred Income Solutions, making for a total of nine DIA players that we know about. Cerulli tells us that six more carriers are fixing to jump in, too, so the DIA sales picture going forward could show more growth. At the very least, the market will see more competition. Last year, DIA sales reached an estimated $1 billion, according to Insured Retirement Institute.

    CDA regulatory work hits another pause: For a while this summer, it seemed as if state regulators would have guidelines for regulating contingent deferred annuities (CDAs) in the works by now. But it turns out that the Life Insurance and Annuities (A) Committee of National Association of Insurance Commissioners, which has done much of the regulatory groundwork so far, still has decisions to make about next steps. The details are complicated, but the bottom line is some interested parties are at odds over certain proposals the committee has developed. Those parties have sent their concerns to the A Committee, so yet more deliberation is ahead.  Some carriers are chomping at the bit, wanting to move forward with CDAs, so they are undoubtedly frustrated. But there you have it: CDA regulatory development has many twists and turns, so fast-tracking is not in the cards.

    Who said that?  “You need to determine all the possible sources of income you can draw from. You have your pre-retirement savings, such as your 401(k), but equally important are guaranteed income streams, such as Social Security and annuities, which can help sustain the retirement lifestyle you envisioned.” Good advice, but who said it? Answer:  Michael Soyka, regional director of planning and sales at Northwestern Mutual, in discussing why retirement income strategies are important.

    Older folks steady as she goes: Seventy-five percent of seniors and 60 percent of baby boomers say their financial health hasn’t changed since the recession, according to joint research by Aite Group and Chase Blueprint.  But only 50 percent of Gen-Xers said the same, and 22 percent of Xers said they suffered a decline.  The study is not about annuity buyers; still, it’s reason for an annuity specialist to give pause. The Gen Xers would seem to be the ones in greater need of financial security right now —and of financial security-building tools. Why not an annuity?  The oldest Gen Xers are right in the midst of their family-raising, career-building and home-buying years. It could be that annuities are the furthest thing from their minds since they are so busy or so strapped financially. But given their post-recession struggles, at least some might be interested in building long-term financial security. They may therefore be open to talking about annuities.

    Retirement planning helps mental health: Researchers at the University of Missouri weren’t speaking about annuities when they pointed out the following, but annuity professionals might want to keep this in mind.  When one spouse planned, the other spouse also planned; and even though husbands planned more often than wives, the spouses influenced each other, said Angela Curl, an assistant professor in the university’s School of Social Work. The observation came in a study she co-authored with Jerry Ingram, an associate professor at the University of Arkansas at Pine Bluff. Here’s the kicker: Previous research has shown that failure to prepare for retirement makes people more likely to be depressed and less likely to make successful adaptation to the life change, the researchers note. On the other hand, the research shows that planning has positive outcomes, such as improved psychological well-being, more financial stability and better role adjustment.

    Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

    Originally Posted at AnnuityNews.com on September 25, 2013 by Linda Koco.

    Categories: Industry Articles
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