Tremendous variation exists among variable annuity buyers today. This analysis profiles that and also points to where the sales are.

The average retail VA buyer, based on our study of more than 750,000 contracts representing over 60% of all new retail VA sales in 2004, looks like this: is 58 years old; has $77,000 invested into the contract; and is as likely to be male as female.

That is very broad. To find the opportunities, we look to the details.

Age. Over 75% of retail VA buyers are age 50-plus; almost one-third of buyers are age 65-plus. Moreover, they tend to have higher premium amounts than younger buyers. For example, the average sale to those 65-plus is $90,000 vs. $70,000 for those under 65.

Nonqualified and IRA buyers. While older buyers tend to have higher premiums, they also tend to purchase nonqualified VAs averaging $82,000. The average nonqualified VA buyer is in the early 60s and often transfers assets from mutual funds, stocks, inheritance and real estate proceeds.

On the other hand, the average IRA buyer is in the mid-50s and has a smaller average premium ($71,000) than nonqualified buyers. IRA buyers can be divided into those making contributions and those funding the IRA via qualified retirement plan rollovers. Based on 2004′s maximum contribution ($3,000 plus $500 more for those over age 50), about 90% of all IRA VA buyers funded IRAs with rollovers. The other 10% used contributions (or rollovers under $3,500).

The average age of buyers funding an IRA with rollover money is 56, considerably older than the average age of buyers making contributions (43). Most likely, the needs of these two segments differ. Rollover buyers often require more comprehensive retirement planning/advice than mid-career workers, who may need investment management and accumulation guidance.

Region. On a per-capita basis, sales tend to be higher in the Northeastern and Midwestern states than elsewhere. In fact, market share was 12.5% higher in the Northeast than population figures would suggest. Undoubtedly, demographics contribute to this–e.g., the average age of Northeastern residents is older than that of Western residents. The insurance industry’s historical representation probably also plays a role; most insurers originated in the Northeast and Midwest, and to this day, sales forces may be more prevalent there.

Distribution channel. Salespeople working within different distribution channels tend to target or attract different types of VA buyers. Individuals buying a contract from a career agent tend to be younger (average age 54) than those purchasing from independent agents and financial planners (average age 57) or bank representatives (average age 59). The oldest buyers typically buy from stockbrokers at major wirehouses (average age 62).

Average premium varies dramatically across distribution channels, with wirehouses having the highest and career agents the lowest. Relatively younger and less affluent clients tend to predominate in the career agent channel, while other channels tend to serve older and wealthier clients. In the IRA market, career agents are much more likely than other channels to sell VAs with premiums in the contribution range (under $3,500).

Cost structure. B-share cost structures–which generally have a six- to eight-year contingent decreasing deferred sales charge–continue to make up two out of three contracts. They are followed by L-share structures, representing 25% of VAs sold. The L-share structures tend to have shorter surrender schedules than the B-share, and they’ve grown in popularity. The L-shares also have higher average premium ($89,000) than the B-shares ($79,000). The A- and C-share structures represent fewer than one in 10 VAs sold.

Living benefits. Today’s VA buyers are more likely to elect a guaranteed minimum death benefit than a guaranteed minimum accumulation benefit or a guaranteed minimum withdrawal benefit, when such riders are available.

A clear relationship exists between benefit election and age of the electors. People electing GMIBs, which often have a seven- to 10-year waiting period before the benefit can be fully utilized, are slightly younger on average than those choosing not to elect (age 56 vs. age 59). The reverse is true for GMWBs, which can be activated immediately after purchase and which are therefore useful for those already beginning to create income from retirement savings. Moreover, those electing either benefit tend to have higher average premiums than nonelectors. This difference could be driven by asset allocation needs of certain buyers, who want to protect a larger portion of their assets within their VA contract.

In sum, understanding buyer demographics can help carriers and distributors direct strategic development, marketing and sales efforts. Buyer profiles also can help identify future growth areas in currently underrepresented segments.