Third Quarter Variable Annuity Product Changes Slow, But Benefits Trend Toward More Generous

Lifetime GMWB Benefits Garner More Than 60% of New Sales Flows

The Insured Retirement Institute (IRI) today released a report on product trend updates within the U.S. variable annuity market. Complied by Morningstar, the report found that variable annuity benefit activity for the third quarter slowed significantly from the robust filings made during the second quarter of this year. In the third quarter, carriers made 40 material changes, down from 162 changes in the second quarter, and down from 106 changes in the same quarter last year.  The new filings focus heavily on new share classes and the Lifetime Guaranteed Minimum Withdrawal Benefit (GMWB) benefit, which traditionally garner about 64 percent of new sales flows.

"Second quarter filings are historically the highest of the year, with third quarter changes representing one of the slowest periods of activity, and this year is no exception," said IRI President and CEO Cathy Weatherford.  "What has not slowed is the continued move toward increasingly generous benefits, a trend that developed in the months that followed the economic downturn and remains a focus of product development activity today.  With variable annuity sales on pace to exceed $150 billion this year, it is clear that consumers are positively responding to the product innovation that has occurred by increasingly placing their trust in insured retirement strategies."

Despite the anticipated slowing of third quarter changes, more than one-third of the filings represented either a new variable annuity contract or a new variable annuity benefit.  Carriers continue to experiment with new benefit design, with the trend toward more generous offerings.  Benefit structures continued to be shaped to allow for risk control and segmentation of the target investor base.  Contrary to the continued move to more robust benefits, variable annuity contract costs have remain steady.  Total average expenses remain unchanged from 2010 levels, coming in at 2.49 percent, a figure that is consistent with the five-year average of also 2.49 percent.

The entire report and analysis can be found here.