Annuity Benefits Paid On The Rise

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.