Remember the film “Groundhog Day,” where Bill Murray was a television weatherman sent off to cover the events surrounding Punxsutawney Phil’s annual appearance on Groundhog Day? During his visit, something happened and he relived the same day over and over until he finally did the right thing. Well, that came to mind recently as I was reading the latest blogs and news releases about annuities.
Glenn Neasham’s situation in California continues to appear in the news. Remember, he was the producer who sold a $175,000 annuity set to mature in 15 years to an 83-year-old woman who was later found to have dementia. Neasham was prosecuted and found guilty by a jury. Since then the verdict was overturned, then the state of California asked for a review of the verdict, which was denied…but the situation keeps coming up in the news over and over again.
Then there’s SEC 151A. Back in 2008 the Securities and Exchange Commission moved to classify indexed annuities as securities, but that maneuver was finally put to rest with the Dodd–Frank Act, which put the control of annuities back in the hands of the state insurance departments. But we’re revisiting that situation once again—with the thought that annuities might be a new tax opportunity. According to NAFA, the Congressional Budget Office projected the potential for an additional revenue to the government of $30 billion. The organization also confirmed in their “Regulatory Watch,” on December 14, 2013, that “Across the Hill, as we had originally suspected, we can now also confirm that the Department of Labor (DOL) [is] in fact planning to re-propose their Fiduciary rule,” which, among other things, proposes to raise standards for brokers providing retail investment advice.
While all of this information is important, what we really need to be focusing on is that the insurance industry has experienced excellent growth for most annuity sales during the last half of 2013. Let’s look at LIMRA’s facts for the third quarter:
“Fixed-rate deferred annuity sales increased 66 percent in the third quarter 2013, compared with the third quarter 2012, according to LIMRA Secure Retirement Institute (SRI).
“Overall, total annuity sales for the quarter increased to $59.4 billion, a 9 percent increase—the largest year-over-year growth since the second quarter 2011. For the first nine months of 2013, total annuity sales were $167.6 billion.
“In addition to the substantial growth experienced by fixed-rate deferred annuities, indexed annuities grew 15 percent in the third quarter to hit a new peak of $10 billion. This growth was driven by improvements in the interest rate environment, increasing demand for accumulation-type annuity products.
“Total fixed annuity sales improved 31 percent in the third quarter over the prior year to reach $23.5 billion—a level they have not reached since the third quarter 2009. Year-to-date, fixed annuity sales rose 6 percent, totaling $58.0 billion.
“Fixed-rate deferred annuity sales—book value and MVA—were $9.5 billion, the highest quarterly total since the second quarter 2011. YTD, fixed-rate deferred annuities sales improved 5 percent.
“In the third quarter, market share for fixed-rate deferred annuities rose 10 percentage points to reach 40 percent of total fixed annuity sales.
“For the first time, quarterly indexed annuities sales reached $10 billion—an increase of $1 billion from the prior quarter. Most of this increase over the second quarter came from accumulation-type products. YTD, indexed annuities sales increased 6 percent, to reach $26.8 billion.
“Variable annuity (VA) sales declined 2 percent in the third quarter, to reach $35.9 billion. YTD, VA sales were $19.6 billion, falling 2 percent from the prior year. Election rates for VA guaranteed living benefit (GLB) riders were 81 percent (when available) in the third quarter, down one percentage point from the second quarter of 2013.
“Deferred income annuities (DIAs) reached $555 million in the third quarter, an increase of 106 percent compared to the prior year. In the first nine months of 2013, DIA sales grew 132 percent to $1.5 billion and are on pace to surpass $2 billion by the end of the year, which would double 2012 results.
“Fixed immediate annuity sales were up 5 percent in the third quarter, to reach $2.1 billion. YTD, fixed immediate annuity sales totaled $5.7 billion, matching sales from one year ago.”
The outlook is sunny for annuities, but let’s hope it isn’t for Punxsutawney Phil on February 2! [SAC]
