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Expect More VA Guaranteed Living Benefits, Survey Says

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The retirement income market appears to be moving out of the “embryonic” stage and into the growth stage, says a new report from The Diversified Services Group Inc., Wayne, Pa.

It its “2005 DSG Retirement Income Survey,” the firm studied the retirement income efforts of variable annuity companies by product type and activity.

Altogether, 24 companies had variable payout annuities in mid-2005, the study found. Of these, 14 are actively involved in the immediate VA market, three say they are inactive in the IVA market and seven are active in the “substitute” IVA market. (Substitutes are VAs sold primarily for annuitization.)

Industry sales of IVAs continued their downward trend, dropping to a total of $397 million for 2004, the third consecutive year of sales decline, says DSG. The IVA business also has been “disappointing” in terms of contracts sold and average premium per contract, says the firm.

However, the survey found growing success in the sale of guaranteed living benefit riders on VA contracts.

For instance, nearly 63% of the surveyed companies now offer at least one GLB rider for their VAs, says DSG, adding that the most popular form of this rider appears to be the guaranteed minimum withdrawal benefit. The GMWB feature was offered by 19.4% of the companies. Meanwhile, the guaranteed minimum income benefit was offered by 17.4%, and the guaranteed minimum accumulation benefit was offered by 16.4%.

GLB features are another “arrow in the quiver” for providing retirement income solutions, sums up DSG.

The report also found that GLB product features still are evolving. This is in reaction to competitive pressures, says the firm. Currently, 81% of GLB products have a step-up feature to lock in market gains, and seven companies have introduced a “for life” benefit with their GMWB.

Looking forward, 80% of survey respondents said they expect GLBs will continue experiencing growth over the next several years. But about half also expect to see serious product challenges over the next three to five years.

Also, many indicated they are continuing to expand their retirement income efforts, with 76% increasing their level of activity in this market.

In 2006, growth and expansion will continue to be high in the retirement income market, concludes DSG, but there also may be some settling out of the competition, as a few competitors begin to emerge as the strongest players.

Expect to see product innovation, building of customer loyalty, and effective technology and processes become increasingly important, the firm adds. The market leaders will be companies that provide packaged retirement income solutions, communicate their advantages to clients via well-educated advisors or more comprehensible communications, and use tools and technology to make the solutions simple and cost-effective, predicts DSG.