10 New Stats on How Cash Comes Out of Indexed Annuities

Cash is coming out of clients' annuities now. Life insurers want to understand how — and how well advisors like you are helping the clients find benefit guarantees that are great for them and hard on the annuity issuers. A research arm of the Society of Actuaries and LIMRA recently published a study, based on millions of non-variable indexed annuity contracts, showing how contract owners with or without guaranteed lifetime withdrawal benefits behaved in 2019 and 2020. For a look at 10 new annuity owner facts, drawn from a public summary of the study and a video introducing the study, see the gallery above.

What It Means

The bits of SOA/LIMRA study data available to the public can help you understand how clients with annuities get income out of their contracts. The study could also affect what kinds of income options life insurers will offer in the future; how much they will charge for the income options; and how much they will get, or pay, if they transfer some or all of the risk associated with blocks of annuities with withdrawal guarantees to other insurers or reinsurers.

The Sales Channels

The new study could also affect how eager the life insurers that write annuities are to talk to you. The SOA Research Institute and LIMRA are locking more of the data behind a paywall than they have when they have conducted similar studies in the past. But one variable companies that pay to see the full study can consider is the effect of whether the clients bought their annuities through independent life insurance agents, RIAs, banks or other sales channels. Marianne Purushotham, an executive with LIMRA, noted in an email interview that the individual annuity market is one area where live-human financial professionals continue to have a big impact. "These are definitely products that are sold and not bought," Purushotham said. "They are complex retirement planning financial vehicles, and most — if not all — customers require an advisor to provide an understanding of how they work and get them comfortable with this being the right product for their needs."

Indexed Annuity Basics

An indexed annuity ties part or all of the crediting rate of an annuity to the performance of an investment index, such as the S&P 500. Keyport Life issued the first modern U.S. indexed annuity in 1995. The issuer of a non-variable indexed annuity agrees to protect the client against any loss of principal related to movements of the investment index. U.S. insurers reported making $80 billion in individual non-variable indexed annuity sales in 2022, up from $64 billion in 2021, according to LIMRA. A guaranteed lifetime withdrawal benefit provision helps the client take specified amounts of cash, either on an informal basis or through an orderly, prearranged, "systematic" arrangement, out of the contract. The SOA and LIMRA joined to publish a non-variable indexed annuity study based on data from 2013 through 2015 in 2019 and a second study, based on data from 2016 through 2018, in 2021. The earlier SOA/LIMRA studies are not directly comparable to the new study, because the list of participating insurers has changed over time.

The New Study

The managers of the new SOA/LIMRA study received data from 17 corporate groups, including American Equity, Athene, CNO's Bankers Life & Casualty, Corebridge, Global Atlantic Financial Group, Nassau Life, National Life Group, Nationwide Life, Pacific Life, Protective Life, Prudential Financial, Sammons Financial, Securian Financial, Security Benefit Life, The Standard and Symetra Financial. The participants accounted for about 64% of new non-variable indexed annuity sales in 2019 and 2020. Marianne Purushotham. Credit: LIMRA