Cerulli: Annuities Must Evolve To Expand Market Reach. (Life/Health).The annuity industry has nearly maxed out its market potential with its current set of products and distribution outlets, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. a report by Boston-based Cerulli Associates. It now faces the challenge of developing "fundamentally new products and distribution strategies" or dealing with a "hasty decline" with dwindling dwin·dle v. dwin·dled, dwin·dling, dwin·dles v.intr. To become gradually less until little remains. v.tr. To cause to dwindle. See Synonyms at decrease. profits and escalating costs. Cerulli based its report, "The State of the Annuity Industry," on white-paper research by third parties and interviews with insurance company executives, broker-dealers, wirehouses and product manufacturers, said spokeswoman Cynthia Saccocia. The report analyzes the changes shaping the industry and identifies opportunities for expansion. Mark Mackey, president and chief executive officer of the National Association for Variable Annuities Variable annuities Investment contracts whose issuer pays a periodic amount linked to the investment performance of an underlying portfolio. , said he hadn't yet seen the report, but does not believe the variable annuity Variable Annuity An insurance contract in which, at the end of the accumulation stage, the insurance company guarantees a minimum payment. The remaining income payments can vary depending on the performance of the managed portfolio. market is saturated. "Tens of millions of baby boomers are in their peak earning years Peak earning years refers to the time in life when workers earn the most money per year. US perspective Given their initial lack of experience, workers' earnings start out low. Earnings peak when workers hit middle age, then begin to fall as retirement approaches. , and many don't have defined-benefit plans," he said. "That's where an annuity can be of benefit to people...And we're seeing a lot of change from defined-benefit to defined-contribution pension plans defined-contribution pension plan A pension plan in which an employer's periodic payments into the plan, rather than eventual retirement benefits to employees, are specified. ." The report found that net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight , as compared with new sales, reached an all-time low of 21% last year, or $29.3 billion, dropping from 31% in 1999, due in part to an increase in surrenders and exchanges into new annuity products from others. Net sales had hit an annual high of $48.1 billion in 1997. Cerulli said some insurers reported 30% of new sales last year were exchanges from competitors' products, and top distributors reported 45% of new sales from these exchanges. Driving this kind of musical-chairs activity is a proliferation of products. Cerulli reported that in 1986, 25 companies offered 45 annuity products. Today, 65 companies offer more than 450 products. The company said a common perspective during its research was that more must be done to attract new money into variable annuities. Cerulli said there are several opportunities for the annuity market to expand. IRA rollover IRA rollover Reinvestment of a lump-sum distribution from an IRA when physical receipt of funds has been taken by the investor. The lump-sum distribution must be deposited in an IRA rollover account within 60 days of receipt to escape taxation. assets, for example, reached $2.47 trillion in 1999, and represent a potential source of annuity funding. Cerulli expects the broker-dealer channel to play a big role in helping clients with rollover A graphic element in an application or on a Web page that changes its color or shape when the pointer is moved (rolled) over it. See JavaScript rollover. See also n-key rollover. assets to annuitize some of it. Cerulli also suggested that insurers find ways to offer their annuity products within wrap-accounts and to tap the nonresident alien market by offering offshore annuities.
Variable Annuity Competition Among Small to Midsize Insurers
A sign of the mature variable- annuity market is that more insurers are
competing for a piece of the pie.
Assets Not Controlled by Number of Participating
Top-10 Insurers Insurers Not in Top 10
1996 34% 64
1997 36% 64
1998 37% 64
1999 37% 65
2000 40% 78
2001 (*) 42% 90
(*)Only first quarter results are available for 2001.
Source: Financial Research Corp., Cerulli Associates
Note: Table made from bar graph
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