Annuity Account Managers Create New Product Strategies

Limra reported that, for the full year of 2022, industry-wide sales of annuities in the U.S. (both variable and fixed) reached $310.6 billion, up from $233.1 billion in 2021 and $207.5 billion in 2020. There are numerous types of annuity accounts, and their variations and complicated details are enough to confuse most consumers. There are multiple styles of variable annuities that attempt to match the investor’s age, financial circumstances and tolerance for risk. The investor may make deposits on a regular basis, such as monthly, or may make a large lump sum deposit when establishing the account. The account’s earnings are income tax-deferred until the investor begins withdrawing money.

A simple annuity grows at a stated range of rate of return offered by the insurance company. The insurance firm takes all of the market risk. This is a good bet for retirees who are looking to create a permanent stream of income.

A variable annuity, in contrast, is an annuity funded by a separate account that invests in mutual funds, bonds or the stock market, at the policyholder’s direction. The annuity’s value rises and falls with that of the underlying portfolio securities. Investors who feel they can get superior returns from the stocks and funds held by the account may prefer this very popular type of annuity. However, the investor assumes the market risk and often pays high management or sales fees. Styles of variable annuities include those that are pegged to a particular stock market index, such as the S&P 500. “Target-Date” accounts, also called “life-cycle funds,” are turned over to professional money managers who automatically balance the underlying investments based on the investor’s age (the assumption being that the older the investor becomes the lower the level of risk that should be assumed). “Target-Risk” accounts are invested based on the investor’s tolerance for risk.

The biggest players in the U.S. variable annuity business include TIAA-CREF, Hartford Financial and Pacific Life. Most major annuity firms have been working to improve their products and services. They are managing the practices of sales forces more carefully, striving to make annuity products match the needs of a wide variety of consumers and taking care to make the risks, costs and features of annuity accounts more readily understandable. Fidelity Investments, for example, offers a variable annuity with no extra benefits or guarantees that charges as little as 0.25% in annual fees. As more annuity options become available on the market, investors are switching old, higher-fee contracts for new ones that cost less.

Another insurance-based investment option is a personal pension. As more employers phase out pension plans, firms such as New York Life Insurance are offering pension products that are based on annuities. Like most annuities, personal pension plans carry heavy penalties for early withdrawal.

As life expectancies increase, insurers in the U.S. and around the world are looking to expand their annuity business. French insurer AXA Group, for example, established “risk labs” in Paris and New York to study longevity and its relationship to financial markets. The markets in Europe, Japan and the U.S. are especially ripe for future annuity sales due to rapid growth in the senior population segments.

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