Almost a Third of Advisers Increased Use of Guaranteed Income

In response to market volatility, in 2009, advisers seemed to favor making more “simplistic” changes to their retirement income strategies, rather than adding annuities, according to Cerulli. For instance, the changes advisers were most likely to make were reducing risk in client portfolios (41%) or reducing withdrawal rates (31%). Cerulli said few advisers have adopted many elements of a “holistic retirement income plan,” such as guaranteed income streams and budget analysis, due to the “enduring legacy of an accumulation focused practice.”

Individual retirement account (IRA) rollovers are one area poised for growth in annuity sales by advisers. As Baby Boomers retire, Cerulli analysts estimate $1.8 trillion in rollovers between 2009 and 2014. Advisers have grown increasingly receptive to both immediate and deferred annuities as a destination for a portion of rollover dollars, as 57% of adviser surveyed in 2009 would consider both immediate and deferred annuities for rollover dollars, up from 41% in 2005, according to Cerulli.

As of year-end 2009, Cerulli found that aggregate retail annuity assets recovered by 16% to nearly $2 trillion. Variable annuity assets rebounded 20% to nearly $1.4 trillion—however, Cerulli noted that sales of VAs, on both a gross and net basis, declined during 2009 (19% and 27%, respectively). The decline of VA sales indicates that the insurance industry continues to have difficulty attracting the new assets necessary for long-term growth, Cerulli said.

Gowing forward, Cerulli found that insurance companies are exploring alternative products and distribution opportunities, such as a combination of annuity/long-term care insurance products and adding more insurance guarantees (such as mutual funds with living benefit wrapper). “In order to successfully attract assets, new product- or distribution-related developments must be designed to please advisors, who will ultimately translate the benefits to their clients,” according to Cerulli.

More information about the report, “Cerulli Quantitative Update: Annuities and Insurance 2010” is available at www.cerulli.com.