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Conning Study Flags Growth Opportunities for Annuity Providers

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Annuity issuers are getting their strength back and are ready to go after new market opportunities, according to analysts at Conning Research and Consulting.

Scott Hawkins, an analyst at Conning, Hartford, has prepared a report that identifies new products, untapped demographic segments and developing overseas markets that could have the potential for growth.


Inflation-indexed annuities tied to the consumer price index hold particular promise for insurers, Hawkins says.

Inflation-linked annuities already account for about 25% of annuity sales in the United Kingdom, Hawkins says.

“In the U.S., most annuities offer at best a 3% to 5% annual ratchet, which is not the same, as inflation can outpace these growth rates,” Hawkins says. “Lincoln Financial Group, to my knowledge, is the only U.S. insurer marketing an inflation-indexed annuity.”

Medically underwritten annuities that increase the payout as life expectancy decreases all offer growth potential, Hawkins says.

Widely available in Europe, “enhanced” or “impaired annuities” are likely to gain traction in the United States as the U.S. subsidiaries of European insurers expand their U.S. presence, Hawkins says.

New U.S. Prospects

There are about 157 million consumers in generations X and Y, compared with just 81 million baby boomers, according to U.S. Census data.

All of those consumers need to save for retirement.

But converting those prospects into clients could be a challenge, particularly if insurers fail to recruit enough young advisors, Hawkins warns. Most producers, he notes, are over age 50.

“Advisors and insurers will have to figure out how to reach to prospects in 20s, 30s and early 40s with products and marketing strategies that appeal to people who are increasingly accustomed to transacting business online,” Hawkins says. “How will they win over these new savers to help them plan for retirement?”

One avenue, he suggests, is to market annuities as accumulation vehicles inside employer-sponsored defined contribution plans, including 401(k) plans. The plans might, for example, contribute a fixed dollar amount to a guaranteed income annuity, or to a hybrid vehicle combining features of a mutual fund and an annuity. The vehicle could be a target-date fund offering guaranteed minimum withdrawal benefit.


The Pacific Rim “Australasia” market is not as big as the U.S. market, but it is a rapidly expanding market for life products, Hawkins says.

“Those U.S. insurers that are looking overseas should think of these markets as long-term growth prospects,” Hawkins says. “And they should pursue them sooner rather than later because of the increasing competition in the region.”

Old Markets Are Maturing

U.S. insurers need to look for opportunities to grow because revenue growth has slowed to about 2.5% per year, Hawkins says.

From 1995 to 2000, annuities were growing 12% per year, and they were still growing 6.5% per year from 2001 to 2007.

“Along with that decline, we anticipate a consolidation of insurers,” Hawkins says. “But those that survive will offer more products than are now available on the market.”

To see an earlier Conning life-annuity market analysis, please read Conning Sees Industry Recovery After This Year.


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