What’s Hot in Annuities? Guarantees.

Much of that complexity, and many of those changes, relate to living benefits—the optional income and withdrawal guarantees that the vast majority of annuity buyers now elect to purchase with their contracts. To de-risk, insurers not only are reducing the guarantee percentages and raising the fees associated with these benefits, they're restructuring the benefits altogether, pushing more risk down to the investor using volatility-based fee structures, ETF-based sub-accounts, dual-sleeve designs (with one sleeve consisting of lower-risk sub-account investments to underpin the living benefit and the other of higher-risk sub-account investments to underpin the base contract), and the like. The result: variable annuities now come with even more variability.

Another area where VA providers are innovating is in O-share products tailored to specific large wirehouses and brokers such as Edward Jones. Essentially, says McCarthy, it's a move by annuity providers like John Hancock, Prudential and others to provide VAs with pricing and compensation structures better suited to fee-based money managers and RIAs. In most cases, he notes, the O-share products come with lower M&E, a broader range of investment choices and fewer living benefit options than their A-share counterparts.

A fixture in the VA space for the last decade, living benefits are fast finding a foothold in the fixed index annuity market, too. According to recent LIMRA estimates, living benefit riders are offered with about 90 percent of FIA products, and that when they're available, they're elected about 60 percent of the time. Guaranteed lifetime income benefits "helped sustain indexed annuity sales" in 2011, according to Jeremy Alexander, CEO of Beacon Research in Evanston, Ill., which tracks the fixed annuity market.

Income annuities are another hot annuity product, having posted an 18 percent sales gain in the fourth quarter of last year and a gain of nearly 7 percent for all of 2011, according to Beacon Research. "Income annuities generally provide the most retirement income bang for the buck," says Alexander. "Sales results indicate that advisors and their clients are becoming aware of how these products can be used to create a personal pension."