Variable Annuity Sales to Hit $22 Billion by 2018: Cerulli

Annuities tied Roth IRAs as the most unsolicited product requests made by investors to their advisors, Cerulli says

Variable annuity net new sales will reach $22 billion by 2018, a 57% increase from 2012 levels, according to a recently released report by Cerulli Associates.

“Net new variable annuity sales plummeted in 2012 to just $14 billion,” said Donnie Ethier, associate director at Cerulli, in a statement announcing the findings of Annuities and Insurance 2013: Balancing Shrinking Supply and Increasing Demand for Guarantees. “However, as interest rates stabilize, we envision legacy variable annuity providers and new entrants, including nontraditional players, to join the marketplace.”

Ethier notes that consumer demand for guaranteed income “is too high for firms to ignore, and many believe they can address the opportunity with greater efficiency.”

In order to continue to strengthen net sales and the industry’s producer base, Cerulli emphasizes the need to attain new sources of assets. This, Cerulli says, “may be achieved by attracting fee-based advisors, getting younger generations to consider the solution, or by constructing in-plan guarantees.”

Cerulli notes in its report that while progress in the traditional variable annuity market has been “marginal,” there has been “inspiring product development and reinvention among insurers” in other business lines, including deferred income annuities (DIAs) and structured VAs.

“Controversially, indexed universal life (IUL) and fixed-indexed annuity (FIA) activity has intensified,” Cerulli says. Cerulli notes its support for the development of “other potential solutions in the making, including contingent deferred annuities (CDAs), fee-based VAs, and simplified VAs, although acceptance and overall sales are unsubstantiated.”

Cerulli’s report notes that annuities tied ROTH IRAs as the most unsolicited product requests made by investors to their financial advisors.

“While this is encouraging for the entire industry and everyone involved, 28% of all households still report being unaware of annuities,”Cerulli says. “However, as they are unaware of annuities’ value proposition, this suggests that they have impartial opinions of annuities.”

Importantly, Cerulli goes on to say that although annuities are among investors’ most unsolicited product requests, “the requests reflect all annuities, not just VAs.” Therefore, “Cerulli recommends that insurers consider other nontraditional designs, including DIAs to address pre-retiree needs, CDAs in an attempt to reach fee-based clients, and structured VAs to provide tax-deferred accumulation.”

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