Brokers fear annuity ignorance

A third of financial advisers surveyed in February believe that insurers do not understand the risks posed by their own guaranteed-minimum variable annuities and many are worried about it, the Wall Street Journal reports.

The poll of Merrill Lynch advisers was conducted at what is now Banc of America Securities-Merrill Lynch, a unit of Bank of America Corp. As the Journal notes, the poll comes amid ratings downgrades for some of the largest life-insurance companies, who for the past five years have become increasingly generous in their guarantees, some promising annual increases of 7% or more.

Last year, Merrill brokers sold $5.9 billion worth of variable annuities from different insurers, a decline of 23% compared to 2007. Industrywide, variable-annuity sales slumped 15% in 2008 and 30% in the last three months of the year, according to Limra International.