Date posted: April 30, 2011
Independent broker dealers are selling a greater percentage of the total annuities market than they did in the past, according to Linda Koco of Insurance News Net. In the article “Independent B/Ds Gain Annuity Market Share,” it says that their individual market share has been increasing since the study was started in 2006. IBD’s were the top distributor of variable annuities in 2010, capturing 30% of the market share compared to their 26% in 2006. With 24% of the market share for variable annuities in 2010, career agents were the second place seller. This was a slight increase from their 23% market share in 2006.
Although IBD’s hold a relatively small portion of the fixed annuities market, their portion has increased from 4% in 2006 to 6% of the market share. Their fixed equity indexed annuities portion is also very small, but increased from 1% in 2006 to 2% in 2010. The bank channel is the top competition for IBD’s in the fixed annuities market, but their share is down to 40%, from a high of 48% in 2008. Independent agents have a strong hold on the fixed equity indexed annuities market with an 85% market share. While that is down from their 89% market share in 2006, the IBD’s portion is miniscule in comparison.
Some of the channels lost some of their market share during the study, in addition to the independent agents decline in the fixed equity indexed annuities market. The bank channel lost the most market share in the variable annuities market, but it isn’t that important overall since their share of that market is fairly low. Independent agents lost the most in the fixed annuities market, but this is not a surprise since 5 year fixed annuity rates were relatively low over the period studied. Overall, IBD’s have been squeezing into the annuities market in any way that they can over the past 5 years or so. LIMRA found that there were approximately 75,000 IBD’s in 2009 selling annuities and making their mark in the industry.
Date posted: April 28, 2011
MetLife is one of the top life insurance companies, and their annuity products are a big reason why. According to “MetLife Annuities See Positive Outlook” by Errol Baddoo of the Annuity News Journal, the company’s annuity sales are soaring. While they didn’t take first place in annuity sales in 2010, MetLife’s annuity sales of almost $21 billion made the top 5. Their variable annuities sold $18 billion in 2010, a 19% increase from 2009. While fixed annuity sales declined by 65%, they still accounted for around $2 billion in sales for MetLife. Fixed annuities skyrocketed in popularity during the recent economic crisis because of their stability in a volatile marketplace. As the economy has improved and variable annuities have increased in popularity, it only makes sense to see somewhat of a decline in fixed annuity sales.
MetLife’s newest variable annuity, a joint force with Fidelity Investments, is called the MetLife Growth and Guaranteed Income variable annuity. In its first 12 months in the marketplace, this new variable annuity accounted for $1 billion in sales. Some of MetLife’s other products include multiple annuity offerings like the 401k annuity, life insurance, other insurance plans, and a plethora of other retirement plan options. Their biggest competitors are AIG, Hartford Financial, and Prudential Financial, the last of which took the top spot in annuity sales in 2010 with $23 billion. MetLife’s stock value of $48.83 is 10% higher than the current market price, according to the Trefis stock price estimate. Annuity products make up around 17% of the stock value for MetLife. The company expects their newest variable annuity and other annuity products to add even more sales in 2011.
Date posted: April 27, 2011
A question was recently asked to CNN Money about the taxes that will be paid to gift a variable annuity to one’s children. Anne C. Lee of Money Magazine cleared up the confusion regarding variable annuity gifting. There are two important things to look into. First of all, the annuity owner will not owe gift taxes on a variable annuity gifted to their children unless the current annuity value is greater than an individual lifetime gift-tax exclusion. This amount is currently $5 million, so most people will be safe avoiding those specific gift taxes.
There is, however, another way that you can be hit hard with taxes when you want to gift a variable annuity. In the CNN Money question, the inquirer mentions that they have had significant gains on their variable annuity. In this case, all of the annuity gains are subject to income taxes as with any investment gain. Taking the entire annuity out at once to gift to one’s children might not be such a good idea because of the potentially hefty income taxes. One option would be to make your children beneficiaries of your death benefits, and they would pay the taxes on their portion after the investor’s death. If you wanted to give them the money now, you could take the money out of your variable annuity in small withdrawals to spread out the tax burden, then gift the cash to your children.
Date posted: April 23, 2011
In the article “A Lost Decade: Or Was It?,” Mark Triplett of Insurance News Net says that he researched the indexed annuity for a life and annuity workshop to see if the product was still a good value in this interest rate market. The author found that indexed annuity products are still very relevant and consistently meet and even exceed investors’ expectations. The advertised benefits of indexed annuities include the fact that they allow for market gains without the worry of losing any of your principal investment or previous interest rate gains. This still holds true and the author found that the average interest rate opportunity for an indexed annuity is higher than fixed annuity rates.
One of the main differences with an indexed annuity is that investors are earning interest on their annuity rather than a return or gain on their investment. Because of this, they are not losing money in a down market. Many people refer to the 2000′s as the “Lost Decade” because most investors did not gain any money and a lot of investors actually lost money from the year 2000 to today. If you had an indexed annuity, however, which is based on any given stock market index, you would still have received a gain over the past decade even with overall downturns. That is because you would have received interest in any up market and not lost money on your principal or gains in the down markets. Your account would have stayed flat in those particular periods.
Interest rates have been low now for eight years. Although it is likely that they will go up eventually, experts have been saying that for years. Indexed annuity products have proven invaluable for many investors over the past decade. It is always smart to have a what-if strategy in case interest rates really skyrocket and it would be in your best interest to compare equity linked CDs or fixed annuity products in the future. Right now though, the author found that it wasn’t difficult to defend indexed annuity products because they have proven to be a beneficial investment for many people over the last decade.
Date posted: April 22, 2011
The new annuity suitability model was put in place to protect investors and ensure that they get the best annuities for them, but the extra training required for advisors may have a negative impact on the choices offered to investors. Darla Mercado of Investment News talks about this double-edged sword in “Annuity exam overload could prompt product pruning.” Each annuity sold now requires a state mandated training course and exam in the states that have adopted the NAIC’s annuity suitability model. So far nine states are using the model, but it is forecasted that all states will adopt the annuities model in the near future. Because of the extra training required and the hours that the education and exams will consume, it is possible that advisors will work with fewer carriers and offer fewer products to their clients.
There is a general annuity course taken online which lasts approximately four hours. After that, advisors must take specific training for each type of annuity product they sell. This includes fixed annuities, variable annuities, and fixed indexed annuities, among others. Training for each single product will take about an hour. Advisors will have to show proof of their training in order to sell an annuity in the states who have already adopted the annuity suitability standards model. Small insurers are worried that advisors will stop selling their annuities because of the extra training required. It is possible that they will stick to the big companies like Prudential, MetLife, and Jackson National. As annuities become more specific and are made to meet the needs of specific clients, this extra training may just keep the best annuities for certain investors out of their reach if their advisor hasn’t gone through the training to sell them. Hopefully the new standards do not negatively impact the annuity industry that they are meant to help.