Annuity FYI Blog

Income annuity database CANNEX tracks advisor searches of single premium income annuities, according to Linda Koco of Annuity News.  In the Insurance News Net article, “Advisors eyeball SPIAs valued at over $200,000,” Koco questions why the amounts purchased are so much different than those researched.  On average, these immediate annuities have premiums around $100,000, even though the amount of advisors’ searches was $231,000.  The yearly average maintained the quarterly averages, although the 3rd and 4th quarter numbers were less than those in the first two quarters.

There are good reasons that the searches are for more than double the actual annuity applications though.  First of all, many advisors and clients are putting money into more than one annuity to spread out risk and to stay within state minimum guarantys.  Even though a $200,000 annuity may be recommended to cover a client’s living expenses, that doesn’t mean that each individual annuity application will be for $200,000 or more.  So the advisor is searching for the total amount that their client will need in an annuity purchase, a search that averages $231,000, but they aren’t buying one annuity with that entire amount.

The average age of clients for which the searches were run is 70, 69 for males and 71 for females.  With $200,000 to purchase an immediate annuity, a 69 year old male would receive approximately $1,500 for their monthly expenses.  Almost all of the searches run were for immediate annuities, a full 90% of them.  Clients plan to use non-qualified money from sources like inheritances in savings and investments to purchase their annuity.  Single life annuities accounted for 61% of the searches, joint life accounted for 19%, and period certain accounted for 20%.

According to the IRI, overall annuity account balances are much lower than this report indicates.  Including fixed and variable annuities, 75% of the balances are under $100,000 and 33% are under $20,000.  So even though searches are well over $231,000 and average application amounts are $100,000, annuity balances appear to be significantly less.

Written by Rachel Summit

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A.M. Best has put together a special report highlighting the life and annuity industry’s 2011 happenings and forecasting those for 2012.  They released a press release summarizing their findings entitled “A.M. Best Special Report: U.S. Life/Annuity Insurers Shifting Gears in Volatile Economic Environment.  Even with a plethora of large economic challenges in 2011, the life and annuity industry made it through the battle with little consequences and even had some fixed-income portfolio gains.  The industry maintained good regulatory capital and operating earnings.  Careful liquidity and capital management allowed the industry to improve the fundamentals of their balance sheets.

Low interest rates are definitely affecting the industry’s earnings, so they have to adapt.  Annuity rates and others affected by interest rates will most likely remain low through 2014.  Although the rate of growth will be slower, A.M. Best does expect positive earnings to continue.  Those life and annuity companies whose earnings are not as tied to interest rates and equity markets will likely maintain better results that those who are.  Product lines that are changed by the equity markets are increasing the hedging costs and reserve needs at companies.  Insurance companies have taken different approaches to the risk with some closely monitoring more risk and others paring down on risky asset classes.

Some insurance companies have slightly changed their variable annuity products to stay in the market, while a few have left variable annuities behind.  Others are moving away from fixed annuities and group medical and long term care insurance.  Companies who are re-emphasizing whole life insurance are more favorably viewed by A.M. Best.  A new deferred acquisition cost accounting system will impact shareholders’ equity as it’s introduced, but the changes will be manageable.  Overall, A.M. Best seems to believe in the life and annuity industry and their future success, despite difficulties in the market.

Written by Rachel Summit

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With $3 trillion sitting in 401k plans, Forbes magazine set out to see why more retirees aren’t purchasing fixed annuities to guarantee them lifetime income.  “Eight reasons retirees don’t buy annuities” not only lets us in on why they don’t, it also tells us why they should.  Advisors don’t tend to push fixed annuities because there is not much work to be done after the initial purchase.  With variable annuities, advisors receive commissions because they are working more with the accounts, but fixed annuities are on autopilot paying clients monthly income.  This seems like a good reason to purchase fixed annuities to me!

Living a long life doesn’t seem scary, like dying early does which pushes many people to buy life insurance.  But outliving your savings if you do have a long life should be a terrifying thought.  Many retirees simply don’t know the odds are that they will live to age 80 or beyond.  The potential gains in the stock market call out to people to invest, but if you retire in a bear market, you could end up losing nearly all your retirement.  Use at least some of your savings to guarantee retirement income for your retirement with an annuity.

Women think that annuities are a bad deal for them because they receive lower payouts monthly.  But you must take into account the fact that women live three years longer than men on average and will get thirty-six more monthly checks.  Couples also have a hard time understanding why their monthly payment is less if the annuity has a rider that it will pay out as long as both of them live.  What you have to realize is that if you both are alive at 65, there is a great chance that at least one person in the couple will live to age 90 and receive annuity payments for a long time.

Many seniors have a strong desire to leave money to their heirs at passing.  By using only a portion of your retirement savings to purchase an annuity, you can save the balance for emergencies and hopefully leaving to your heirs.  Insuring that your heirs won’t have to use their money to pay your expenses in retirement is sometimes more important now than leaving them money.  No one wants to think about the fact that they could be living in poverty if they live a very long life, but statistics show that more and more very elderly people are forced to live in poverty because their savings ran out.  Purchasing fixed annuities at retirement will ensure that you receive continued monthly income for the rest of your life.

Written by Rachel Summit

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The retirement income business and the broker-dealer unit have been combined by New York Life Insurance Co.  They just reorganized their company into two separate businesses.  Their insurance group will remain a separate entity from the other business of retirement income.  New York Life Investments, the broker-dealer unit, will join with New York Life’s retirement income business and be headed by Executive VP John Y. Kim.  Currently, the retirement income business includes both immediate and deferred fixed annuities as well as variable annuities.

Kim has been in charge of New York Life Investments since 2008.  He will now be in charge of New York Life’s retail annuities and mutual funds, as well as their retirement plan services and institutional asset management.  Executive VP Chris Blunt will be running the separate insurance business; he previously was in charge of the retirement income business that has been combined with New York Life Investments.  His job responsibilities in addition to running the insurance business will include the company’s long term care insurance and the business operations of marketing, finance, technology, and service.  The Mexico operations are also now part of this new group.

New York Life’s market share has increased to double digits since they started their reorganization in 2008.  They have also seen significant growth in their investment business and retirement products like annuities.  This realignment will help them keep their focus on agency led distribution.  Their 12,000 agents will still be overseen by Executive VP Mark Pfaff.  The company believes this realignment will help them keep their top spot in the life insurance industry and annuity industry, as well as increase their other retirement business.  A.M. Best rates New York Life Superior with an A++ score.

Written by Rachel Summit

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In “Why consider an annuity?,” Scott Lunsford writes in the Chillicothe Gazette that there is no better time than now to purchase an annuity.  He says that while some annuities can be complicated, a fear of many people, a fixed annuity is straightforward and offers you a multitude of benefits for your retirement years.  Since you insure your house and car with an insurance company, it is a wise decision to insure some of your retirement savings with one as well.

Fixed annuity rates are currently 3.5% and are guaranteed not to go below 2%, something that can’t be matched by many other savings vehicles.  You also are typically allowed to withdraw up to 10% of your money each year without a penalty and with death benefits, you can avoid the hassle of probate court after death.

Fixed annuities are similar to bank CDs, with the exception that they are most often bought through an insurance company rather than a bank.  Annuities are different in that they are tax-deferred and offer more flexibility than bank CDs and other savings vehicles.  They also have guarantees that last over your lifetime and in some cases, your spouse’s lifetime as well.  The author believes that everyone should at least consider purchasing an annuity, especially because of the volatile stock market and very low interest rates that we are currently experiencing.

Written by Rachel Summit

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