Inflows dropped to $84.7 billion from $90.3 billion in 2011, reflecting in part a spike in fourth-quarter outflows. Although the outflows reflect real investor activity, the jump may have been driven by insurance companies trying to get out of the annuity market, according to Andrew Blumberg, DTCC's director of analytic reporting.
At the same time, annuity outflows jumped 11% to $73.5 billion from $66.3 billion in 2011.
FOCUS ON IRAs
More than 50% of annuity inflows were in IRAs, Blumberg points out, suggesting an area of opportunity for advisors. "If you are in the business of building assets under management, you might try to focus on the types of accounts where assets are retained," he says.
That points to qualified accounts, he explains. "We're seeing a larger amount going into qualified account types, largely IRAs," he says, "and the outflows on nonqualified accounts are much, much higher."
DTCC sales consultant Tom Pistole, a former divisional sales manager at Sun Life Financial, adds that “the high percentage of tax deferred products being sold into IRA or other qualified accounts is a function of the ‘extra benefits’ available from annuities that you do not receive in other investment products. Specifically, annuities provide a guaranteed death benefit and the guaranteed living benefits provide certainty similar to a pension that other investments do not.”
Among different product types, the inflows into variable annuities were essentially flat for the year at $63.8 billion. There were bigger changes in fixed annuities and variable-and-fixed products (variable annuities with a fixed component), both of which accounted for a smaller slice of the market incurred inflow declines of more than 30 percentage points.
Data in the report comes from transactions processed by DTCC's Insurance & Retirement Services division, which handles the majority of U.S. annuity and life insurance transactions.