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Record low variable annuity rates prompt insurers to innovate


Variable annuity net sales are reaching new lows, causing US insurers to innovate toward retirement income opportunities, according to new research by Cerulli Associates.

"After a decline in supply of variable annuities with rich guaranteed living benefits (traditional variable annuities), the annuity marketplace is undergoing significant fragmentation," says Chris Nadai, senior analyst at Cerulli. "The impetus behind this product transformation is to satisfy the consumer demand for annuities that provide guaranteed monthly payments in retirement, potential for account growth, tax deferral on the earnings, and asset protection by insuring a minimum value of payments from the account."
"Given the recent restrictions and reduction of benefits for traditional variable annuities, the advisor and investor have shifted the demand curve to buying these benefits in separate products from insurers to reduce annual fees and risk of future benefit changes," Nadai explains. "The products also have greater appeal in their simplicity given that traditional variable annuities are too complex for some advisors and many consumers to understand."
Cerulli's latest report, Annuities and Insurance 2014: The Evolution to Sustainable Retirement Income Solutions, focuses on three key areas of the annuities and insurance markets-distribution, product development, and the asset management of core products, including variable annuities, fixed annuities, equity-indexed annuities, and life insurance. The report leverages continuous analysis of the variable annuity, insurance, and insurance subadvisory marketplaces.
"The annuity industry must tap new sources of assets to increase net sales, whether it is accomplished by enticing fee-based advisors, younger generations, or constructing in-plan guarantees (e.g., defined contribution plans)," Nadai adds. "While this recommendation aids in boosting the industry's asset base, it would also assist the industry in overcoming the negative perceptions of relying on 1035 exchanges.

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