2014 – The Year of the Fixed Annuity

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Message from the President – Kim O’Brien

The Chinese Lunar calendar follows a 12-year cycle to form the Chinese zodiac, in which each cycle is represented by an animal that carries cultural meaning. Since any new year is a time for renewal, we’d like to borrow from the Chinese tradition and proclaim 2014 as the YEAR OF THE FIXED ANNUITY! This year, the Chinese New Year begins on January 31 with the sign of the HORSE. The spirit of the horse is recognized to be the Chinese people’s character – unremitting in efforts to improve. How fitting for the Year of the Fixed Annuity, because this is our industry’s character too – unremitting in efforts to improve people’s lives with guarantees, certainty and protection.

There are many reasons for this proclamation, and NAFA will be promoting, educating and providing resources throughout the year to ensure that 2014 is indeed a spectacular year for fixed annuities. Why are we so optimistic? NAFA looks to three major trends –momentum, uncertainty and opportunity.


2013 was a great year for fixed annuities. Sales were up in third-quarter 2013 compared with third-quarter 2012 in every product category.1 However, the first half was a bit bumpier, with almost all fixed annuity products down during the first quarter of 2013 compared with that same quarter in the previous year. The second quarter numbers were a bit better for indexed and deferred income, showing strong signals that the income benefit rider or the deferred income annuity was the enticement that people needed to move money into fixed annuities. The guaranteed “income for life” promise is compelling to consumers, and the sales trends show that deferring the trigger of income is equally so.

The other interesting momentum story is that banks are finally and strongly embracing indexed annuities, showing a 52% year-to-date sales increase and a 24% increase for all fixed annuities.2 Independent broker-dealers and national brokerage firms also demonstrated heightened interest in indexed annuities sales – producing a 35% increase in 2013.3 NAFA believes this is due to many factors, including: a growing acceptance of the defeat of 151A; a greater understanding of the product and its benefits; the industry’s tireless efforts to explain and promote the product; and, increasingly independent marketing organizations engaging in alliances with or ownership of alternative channels.

Lastly, we began to see interest rates rise in the third quarter of 2013, driving sales and pushing fixed annuities to their highest level since 2009 – reaching almost $24 billion. Over the past few years, unconventional monetary policies of the U.S. Federal Reserve have suppressed U.S. Treasury rates to unprecedented lows in an effort to stimulate economic growth. However, recent U.S. economic data reflects modest acceleration that may give the Fed the support it needs to begin tapering quantitative easing, with the added benefit of declared or indexed rates rising for annuity owners. In a report by Janus Capital, a review of the S&P 500 return during 21 previous rising-rate periods, the S&P increased in 16 of those periods, averaging just under 12%. The following S&P historical returns mean additional earned interest to indexed annuity owners. NAFA predicts that these sales, demographic and economic trends will continue in 2014 to boost fixed annuity sales even further.


Americans saving for retirement and those currently retired have four major challenges facing them, which are driving uncertainty about their retirement and their ability to live the lifestyle of their dreams.

1.   Social Security Taxation

2.   Cost of Health Insurance/Care

3.   Increased Debt and Decreased Savings

4.   Longevity

1.  Due to legislative changes over the past 10 years, the rules for retirement have changed. Dan McGrath of Jester Financial tells NAFA that certain Medicare premiums and surcharges are automatically deducted from Social Security benefits. Plus, Medicare has been inflating at over 7% for the last 47 years, and the expected COLAs for Social Security, according to the Social Security Board of Trustees, are to be no higher than 2.8% for the “foreseeable future.” To add to the retiree’s burden, Medicare is now mandatory and means tested. This means that in order to collect Social Security, retirees must accept Medicare when eligible or forfeit all Social Security benefits. The one expense retirees must have in order to collect Social Security is also the one expense determining the amount of retirement income.

2.  Meanwhile, the cost of health care accounts for 33% of expenditures for Americans 60 and older. Uncertainty over the cost of health insurance mandated by the Affordable Care Act has been exacerbated by the poorly managed rollout and the daily changes to the rules. NAFA has many individual stories of small-business owners and individuals facing sticker shock over their health insurance premiums and deductibles regardless of whether they are provided through the government or their employers.

3.  For the past 90 years, Americans have been taking on a growing debt burden that’s making it increasingly difficult to save for retirement. According to Federal Reserve data, the average debt-to-income ratio back in the mid-1950s was between 40% and 50% and peaked in 2007 at nearly 130%!

4.  For many of us, our grandparents’ retirement was fairly simple. They relied on defined pension plans and Social Security. This has become less and less true for subsequent generations and perhaps nonexistent for Generation Y (aka the Millenials). Also, it was extremely rare for our grandparents or our parents to work after retirement in order to supplement income – once they retired, they were retired for good. Increased life expectancies today make it much more difficult to predict what retirement will look like – and therefore it’s much more complex to calculate what it’s going to take to sustain a successful life as a senior. According to a 2013 Merrill Lynch Retirement Study, 7 in 10 Americans are saying they will likely include some work in their retirement years.


Annuities, annuities, annuities! All of us in the annuity industry understand that fixed annuities are the solution to addressing these uncertainties. But we still have a lot of work to do to ensure that fixed annuities are positioned and designed to ensure lifestyle protection and retirement satisfaction. Fixed annuities must be diligently protected from the threats our products face and positioned to seize opportunity when it presents itself. NAFA committee members have been working hard to ensure that NAFA capitalizes on the opportunities and protects against actions and activities that harm our products. Each NAFA committee spent the last months of 2013 establishing priorities that help direct and focus NAFA on its mission. The detailed priority lists can be viewed at www.nafa.com.

NAFA’s Government Relations Committee

Led by Chair Beth Lindsay of ING and Vice Chair Mark Triplett of AMZ Financial, the committee identified key advocacy priorities for 2014, and the highlights include advocating for the robust consumer protection and demonstrated results of the suitability standard and against a uniform fiduciary standard; opposing tax-reform efforts that would adversely impact fixed annuities; driving efforts by the NAIC to revise fixed annuity reserving rules using a framework and treatment approach that is fair and reasonable and ensures a level playing field; and promoting efforts by the NAIC and states to adopt a bulletin clarifying permissible and prohibited activities of annuity salespeople similar to Iowa Insurance Bulletin 11-4. See State Roundup for more details.

The NAFA Education Committee

Led by Chair Roger Bell of SuccessCE, the committee will focus on directing NAFA’s highly attended Educational Webcasts; providing content and publications for NAFA’s consumer website www.FixedAnnuityFacts.org and SAFE, the Society for Annuity Facts & Education; developing a web-based program for online access to NAFA publications and sales materials; and overseeing the NAFA website content and navigation.

NAFA’s Membership Committee

Under the leadership of Chair Gayle Allen of North American Life and Health and Vice Chair Gloria Slaughter of Insurance Media Services, the committee will be actively engaged in recruiting new insurance marketing companies and carriers as well as additional distribution channels. The membership committee will also work to enhance existing member benefits and identify new opportunities that will provide education, promotion and sales resources for NAFA members.

IMAC, NAFA’s Insurance Marketing Advisory Committee

This committee is carrying out NAFA’s 2014 priorities and mission to promote annuities. IMAC’s main function is to foster a better understanding of the value that IMOs add to our fixed annuity distribution channel and provide a community in which IMOs can educate one another about IMO business, regulatory and marketing issues. Chair Kevin Meyer of DressanderBHC and Vice Chair Mark Massie of Unkefer & Associates will lead IMAC in 2014; focus on organizing the 6th Annual IMO Summit; and, importantly, continue its efforts to adopt uniform standards between marketing organizations and carriers of data feeds for recruitment, appointment, commissions, new and in-force business.

2014 will be a very important and memorable year for fixed annuities, and NAFA will be your fixed annuity leader in the education and advocacy of our products’ important features that provide guaranteed financial and retirement solutions. NAFA will also remain diligent and engaged to ensure that unhealthy regulation, inaccurate reporting and harmful public policy are opposed and corrected. We appreciate your support of fixed annuities!

We are grateful to our members for helping to guide our efforts and direct our priorities. Here’s to an AMAZING 2014 – the Year of the Fixed Annuity.

Editor’s NOTE: For more information on any of the reports, individuals or statistics cited in this article, contact info@nafa.com or call 414-332-9306. 

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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