Annuity FYI Blog

Despite the work of the government and many insurers, the use of annuity products in retirement plans is not as common as it should be.  Daisy Maxey’s Market Watch article, “Annuities in retirement plans remain rare,” lists some of the options available to investors.  Many retirement plan administrators don’t think that the appetite is big for annuities, but BlackRock Inc. says that their research has shown increased interest from plan participants.

Prudential Financial offers IncomeFlex for defined contribution retirement plans.  The variable annuity was revamped in 2009 to meet changing demands from plan participants.  Investors receive a guaranteed lifetime payout of at least 5% starting at age 65, for a 1% yearly fee.  There are 7,000 different retirement plans offering Prudential’s product and over $500 million invested, an increase from last year of $200 million.  Fidelity has a program to help retirement plan investors create portfolios by analyzing their individual situation.  Some investors worry that 5 year fixed annuity and other annuity rates are fairly low now, but Fidelity can help investors understand the value these annuity products will bring them in retirement.

The U.S. Department of Labor has been looking into multiple regulations regarding annuity products and their use in 401k annuity plans.  Some retirement plan sponsors seek more regulation before introducing or expanding their 401k annuity offerings.  BlackRock Inc. and MetLife Inc. are working together on the LifePath Retirement Income Fund annuity, but would like more clarification from the government on their fiduciary responsibility offering 401k annuity products.  While annuity products are available for purchase by retirement plan participants, the industry is still working on making them more readily available to ensure guaranteed retirement income for investors.

Variable annuity demand has been increasing for over a year now, according to Bloomberg’s “U.S. Variable Annuity Sales Rise 24% Led By Prudential, MetLife.”  Noah Buhayar’s article says that variable annuity sales have increased for five straight quarters as the stock market has risen.  Prudential Financial and MetLife have led the way in variable annuity sales and their increases have helped the industry thrive.  Sales were up 24% from the first quarter of last year to the first quarter of this year.  Prudential sold $6.81 billion of the total $38.9 billion.  They were the top variable annuity seller and saw an increase of 40% from last year.  MetLife’s $5.68 billion in variable annuities was the second most sold and a 41% increase from last year.

Many changes are expected in the variable annuity industry, which could be one reason for the increase in sales.  Investors are trying to lock in guaranteed benefits like death benefits and guaranteed annuity rates for payouts before any changes occur.  Equity linked variable annuity products saw large sales as the stock market increased from its lows in March of 2009.  Last year the S & P 500 increased 13%, followed by a 5.4% increase in the first quarter of this year.  The stock market increase and a possible worry about increasing fees or changes in benefits are a good part of the reason for the variable annuity sales increase.

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.

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.

According to NASDAQ article “Positive Outlook for MetLife Annuity Sales,” the Trefis Team says that MetLife’s new variable annuity has accounted for over a $1 billion in sales in just one year.  MetLife teamed up with Fidelity Investments to offer the MetLife Growth and Guaranteed Income (MGGI) variable annuity, which is very popular among investors.  MetLife offers many different annuities, insurance products and retirement plans.  Their main competition comes from Prudential, AIG and Hartford.

The Trefis Team estimates MetLife’s stock price at $48.83 and they say that 17% of that can be attributed to the company’s annuity sales in the U.S.  That price estimate is about 10% higher than the market price because of MetLife’s improved outlook.  They had the second highest annuity sales in 2010, selling close to $21 billion.  Variable annuity sales were more than $18 billion and fixed annuity sales were just over $2 million.  Although MetLife saw a decline in fixed annuity sales, their variable annuity sales increased by 19%.  Prudential was the only company to have higher annuity sales in 2010, with sales over $23 billion.

Fixed annuity sales saw a large decline last year partly because of the large increase they saw in 2008 and 2009 during the economic crisis.  Investors were looking for less risky investments and sought the comfort of fixed annuities.  As investors switched back to taking on more risk, they went back to variable annuities hoping to see large increases in their investments.  Overall variable annuity sales in the market increased 11% in 2010, while fixed annuity sales decreased.  The total annuity premiums for MetLife last year were $875 million, which was an increase of 40% over their total annuity sales in 2009.  The Trefis Team expects continued growth in annuity sales for MetLife.