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Annuity Benefits Paid On The Rise

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The annuity benefits that insurers are paying out to contract holders are edging close to $50 billion annually, according to data in annual statement filings.

In 2004, the top 50 companies paid out $48.7 billion in total annuity benefits, according to data gathered from the National Association of Insurance Commissioners’ annual statement database via National Underwriter Insurance Data Services/Highline Data. This was 11% greater than 2003′s $44 billion, which in turn was 4% over 2002′s $42.2 billion.

If companies with abnormally large increases were removed from the top 50, total annuity benefits paid out rose by a respective 8% and 4% in 2004 over 2003, and 2003 over 2002.

Increases also were posted for ordinary individual annuity benefits paid out to contract holders, according to the NAIC/Highline Data. The totals reflect data on page 6 (analysis of operations by line of business), line 12 of the annual statement (blue book).

Benefits paid in 2004 were $24.1 billion compared with $21.5 billion in 2003, a 12% increase. The 2003 total was up 5% over 2002′s $20.4 billion. If companies with very large increases are excluded from the top 50′s total, then the percent changes in 2004 over 2003, and in 2003 over 2002 were 9% and 4%, respectively.

“The conclusion that we are drawing is that it isn’t, at least for us, a remarkable trend,” according to Tom Shade, senior vice president with AXA-Equitable, New York.

Year over year, annuity benefits paid out increased 5%, an increase AXA-Equitable attributes to the growth of its in-force business, he continues.

While he says that annuitization and the use of annuities to create income streams will be something the insurance industry will see over time, he explains that it is speculation with regard to existing numbers. He adds that these emerging trends will take time to develop because of the large in-force numbers AXA-Equitable and other companies have.

The annuity benefits line in the annual statement doesn’t reveal anything about how the proceeds are used by those receiving the funds, which could include reinvestment, possibly in another annuity contract, rather than income, according to Robert Hafner, associate director with Standard & Poor’s Corp., New York.

But traditional annuitization has been a little used option elected with less than 2% of account values, he says. Traditional annuitization has never been widely used to convert annuity savings into an income stream because many people are uncomfortable relinquishing control over their assets, Hafner continues.

Some living benefits offered in variable annuities, however, will likely provide annuitants a more attractive way to convert their savings into protected income streams while maintaining more control over assets than do traditional annuitization options, he says. These benefits include the recently introduced guaranteed lifetime withdrawal benefits. Since these are still new benefit features, it remains to be seen how extensively they will be used, Hafner adds.

Increases in benefits paid could be attributable to several types of annuities including those used for structured settlements, as well as retirement annuities, and a niche market in ‘Medicaid-friendly annuities,’ says Arthur Fliegelman, vice president and senior credit officer with Moody’s Investors Service, New York.

Only a few companies now are focusing on offering annuities that will help create lifetime streams of income, he says. The payout annuity has a long way to go before it becomes a sizeable market, Fliegelman says, adding that if this market is to grow, companies will have to address issues such as the public’s willingness to give up control of their assets and advisors’ lack of involvement with the product once it is sold.

Julie Burke, managing director with Fitch Ratings, Chicago, says as the payout annuity market grows, it is likely total annuity benefits paid out will also grow.


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