Message from the President

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The leaves are falling and we are closing in on the end of another year. This month’s issue of Annuity Outlook is dedicated to helping you prepare your annuity business for 2013. We are confident you will find compelling and helpful ideas and insights throughout this issue. While the falling leaves are not tea leaves, we will attempt to read them nonetheless.

NAFA believes that the outlook for the marketing and sales of fixed annuities will continue to be bright in 2013. A variety of demographic, political and economic realities will drive a need for protection and surety; annuities will become an increasing – and even critical – component in retirement plans. We feel this will come to fruition because -

Saving Through Employer-Sponsored Plans has Become a Greater Challenge

Just this past summer, the Internal Revenue Service (IRS) provided an “Annuity Guidance” telephone forum. During the forum, the IRS noted the significant shift from defined benefit to defined contribution plans. This shift, taking place over the last ten to thirty years, showed the share of private-sector workers covered by defined benefit pension plans falling from 38% in 1980, to 20% in 2008. After the 2008 economic crisis, and the stagnation that followed, many experts believe this percentage is more likely around 15% today. The IRS also reported on the shift in assets in the plan from 1980, where 71% of the retirement savings were held in defined benefit plans; to 2008, where 60% of these assets had shifted to defined contribution plans. Meanwhile, we can count on –

Less Social Security and Employer Matching

The IRS cites that one-third of Americans aged 80 and over today receive more than 90% of their income from Social Security. The IRS predicts that future Social Security benefits will provide only 55% of lifetime average earnings for those using the benefits. Compounding the issue is the fact that a large percentage of companies cut 401(k) matching contributions during the recession. While some employers are beginning to restore them, many are contributing less than before. Some are even linking contributions to profits; or making workers save more on their own, before kicking in a matching amount (Kelly Greene writing for the Wall Street Journal). This means that employees bear the burden for making the decisions on where and how to save for their retirement; but are they prepared when –

The Understanding and Literacy of Financial Options are Low –

At the same time the IRS forum was taking place, the Securities and Exchange Commission (SEC) released a two-year report (mandated by the Dodd-Frank Finance Reform Bill of 2010) on the financial literacy of individuals who own stocks, mutual funds, 401(k) plans, and more. The report stated that individual investors, who own about a quarter of all equities, have a “weak grasp of elementary financial concepts and lack critical knowledge of ways to avoid investment fraud.” According to an August 30, 2012 article of this SEC study, published in “The Daily Beast,” the “4,800-person sample showed that women, African-Americans, Hispanics, the poorly educated, and the very elderly are the least informed, and most vulnerable.” So, perhaps an insured fixed annuity might be an option because –

Customer Satisfaction of Fixed Annuity Owners is Extremely High

Every Monday, NAFA [through the partnership with the Indexed Annuity Leadership Council (IALC)], releases a Monday Media Report. If you are a member of NAFA, and are not currently receiving this report, make certain to sign-up at Those who are receiving it, know that increasingly more positive articles about the benefits and offerings of indexed annuities are being written, and populated in media outlets such as “Barron’s” May 28, 2012 cover story, The 50 Top Annuities, and June, 2011’s “Smart Money” cover story, “Good Grief! I need an Annuity?!” Most recently, a study released by the Life Insurance Market Research Association (LIMRA) indicates very high satisfaction levels among buyers of fixed annuities. These survey results revealed that “83 percent of indexed annuity buyers, and 86 percent of traditional fixed annuity buyers, are satisfied with their deferred annuity purchase.” Last fall, LIMRA surveyed 1,200 consumers, aged 40 plus, who purchased a deferred annuity within the past three years. LIMRA found that the top reason consumers cited for purchasing their annuity was to “supplement their Social Security or pension income.” Insuring guaranteed lifetime income is also a top priority, particularly for annuity owners aged 60 and over; LIMRA reports that annuity buyers’ single most important financial objective is to “have enough money to last their (or their spouse’s) lifetime.” The previously mentioned IRS report also acknowledged that lifetime annuities provide greater retirement security, by providing future income payments for the life of the retiree, in addition to providing the option for income payments for the spouse or other beneficiaries (after the retiree’s death).

Annuity Sales Continue to Rise

According to Beacon Research’s Fixed Annuity Premium Study for the second quarter of 2012, both indexed and income annuities had their second-best sales quarter ever, despite the low interest rate environment. Also, in a new report, “North American Annuities, 2012: Market Trends and Technology Considerations,” Celent (an independent research company focusing on banking, investments and insurance) stated that “insurers in 2012 are experiencing increased annuity sales, due to the recent successes of indexed annuities.” Celent estimates that indexed annuities, and a host of other new annuity products introduced over the past few years, will help total annuity sales grow to $368 billion by 2014. If this growth simply remains level going forward, it could translate to $120 billion in fixed annuity sales annually.

There may be several other key drivers for the fixed annuity sales growth we’re seeing today, which will likely continue into 2013:

1. Variable annuity carriers retreating or leaving the market completely is creating an ever-increasing demand for fixed annuities.

2. Lifetime income - As LIMRA reports, consumers want lifetime guaranteed income products that are available through immediate income annuities and deferred annuities with income riders. Today, 64% of all indexed annuities offer income riders.

3. Taxes and the economy – There is a strong likelihood that tax rates will be higher next year, or the year after. Few believe that tax rates will be lower in the near term. Many consumers are pessimistic about the stock market and employment prospects. There is now $10 trillion sitting in cash, money markets, and demand deposits. While stock market volatility spikes, consumers will flee to safety, with annuities looking even more attractive; particularly the indexed annuity with its 0% guaranteed floor. Also, the tax deferral feature found in all fixed annuities will be a good value for those with taxable income.

NAFA believes that all of this information and data reinforces that there will be an increasing demand for the services of ethical and knowledgeable financial professionals, who offer the only insured retirement solution with no investment risk – fixed annuities. In short, independent agents, brokers, registered reps, and advisors should find that more consumers will be demanding the features of fixed annuities, and that their consumer value proposition will be more compelling than most other product choices.

NAFA will be Your Advocate and Resource

NAFA must and will remain vigilant and actively work with state and federal agencies to ensure that our products (as well as those who manufacture, market and sell them) are appropriately and effectively regulated. Decisions made by elected officials can influence our business success as much as your own efforts—sometimes even more. It’s quite simple; we can get involved in the public policy process; or wait around for the results to filter-down. NAFA will capitalize on the work we have started – maintaining the seller’s exemption in the definition of investment advice, promoting the suitability standard and maintaining it over a fiduciary standard in the sale of fixed annuities, working to remove the limitation on indexed annuities for Qualified Lifetime Annuity Contracts, educating state regulators and NAIC leadership to improve annuity disclosures, illustrations, suitability training and state licensing requirements. We will work with the NAIC, to more actively engage in promoting the suitability standard as the GOLD STANDARD IN CONSUMER PROTECTION. We will take action when state regulators misapply or misinterpret state insurance and securities laws.

NAFA is determined to GET ACTIVE, by increasing our lobbying and educational activities (at both the state and federal levels) in three important ways.

First, the NAFA Board of Directors has authorized the establishment of a Political Action Committee (PAC).This August, NAFA’s PAC was formed to increase our participation and influence in our country’s political process. NAFA’s active and engaged Government Relations Committee will help to direct and deploy our state and federal lobbyists, to detect early warning signs of issues that could hurt or help fixed annuities.

Second, the NAFA Board of Directors has authorized a “Producer Advisory Panel,” as well as a robust and targeted producer/advisor recruitment campaign, which will be utilized to educate, inform, support or protest as needed.

And third, we will utilize our NAFA grassroots system, powered by CQ Roll Call – the pioneer of online advocacy and a United States Congress approved vendor – to stay abreast of issues as they develop. We will also use this system to inform members of issues we are facing and, when necessary, direct individuals to take action and influence their representatives so that we can ensure positive outcomes for fixed annuities. There are no guarantees, but NAFA recognizes that staying on the sidelines is not an option moving forward.

Despite the challenges ahead, NAFA knows the future is bright for fixed annuities. We are excited about 2013 and the positive impact our products will have on American retirees as well as those planning for retirement. NAFA foresees a bright future for income annuities (SPIAs) as well; ever-increasing sales levels will provide evidence that these dependable products work to provide income solutions for aging retirees. These products will benefit those who are living longer, as well as young workers, looking forward to less Social Security benefits during their retirements.

We are poised to educate our members on compliance, marketing and new innovations in the fixed annuity industry; as well as advocating for regulation and legislation that benefits annuity buyers and the fixed annuity marketplace. NAFA wishes you all a very productive and successful final quarter and we hope you can take some time to enjoy the fall colors and kick your way through a pile of leaves…

Thank you for supporting fixed annuities.

Kim O’Brien is NAFA President & CEO. NAFA membership represents over 85% of all premium for fixed indexed, declared rate and income annuities written through the independent distribution system. Kim has over 30 years of experience in the insurance industry beginning as in 1981 as office manager for an insurance agency. In 2002 Kim developed and ran her own marketing organization and received the 2002 Entrepreneur Award from Sun Life. In between, Kim worked as a marketing executive for major insurance companies and was responsible for their annuity and term life insurance product line development, marketing, and training processes. In 1993, Kim served as interim deputy director of the Wisconsin Department of Insurance under Governor Tommy Thomson and served Governor Thompson until a permanent replacement could be found. In July 1992, Kim was the first women in Wisconsin to pass the CFP exam established in 1991 by the CFP Board as a single comprehensive examination modeled after the licensing examinations given to attorneys or Certified Public Accountants (CPAs). Kim O'Brien received her BA from Ripon College, her MFA from the University of Northern Colorado, and an MBA with an emphasis in Economics from Edgewood College, Madison, Wisconsin. In 2008, Kim was accepted into the Juris Doctorate program at the William H. Taft Law School and completed her first year and passed the preliminary California Bar as required before continuing her degree. She has recently re-instituted her studies to begin this summer after a hiatus due to her NAFA workload. As an avid musical theater fan and dancer, Kim has directed or choreographed over 60 shows in Milwaukee and Madison, Wisconsin. She lives with her husband and college sweetheart of 39 years, Kelly, in Phoenix nestled in the Thunderbird Conservatory she enjoys hiking the mountains with their Irish setters.

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