INSURANCE TOPICS

Annuities

SALES OF FIXED AND VARIABLE ANNUITIES\

There are several types of annuities. Deferred annuities generally accumulate assets over a long period of time, with withdrawals usually as a single sum or as an income payment beginning at retirement. Immediate annuities allow purchasers to convert a lump sum payment into a stream of income that begins right away.

Deferred and immediate annuities can be either fixed or variable. Generally, interest credited and payments made from a fixed annuity are based on rates declared by the company, which can change only yearly. Fixed annuities are considered “general account” assets. In contrast, variable annuity account values and payments are based on the performance of a separate investment portfolio, thus their value may fluctuate daily. Variable annuities are considered “separate account” assets.

There are a variety of fixed annuities. One example, the equity-indexed annuity, is a hybrid of the features of fixed and variable annuities. It credits a minimum rate of interest, just as other fixed annuities do, but its value is also based on the performance of a specified stock index—usually computed as a fraction of that index’s total return. Annuities can also be classified by marketing channel, in other words whether it is sold to groups or individuals. (See the Premiums by Line table, page____.)

PREMIUMS BY LINE

Measured by premiums written, annuities are the largest life/health product line, followed by life insurance and health insurance (also referred to in the industry as accident and health). Life insurance policies can be sold on an individual, or "ordinary," basis or to groups such as employees and associations. Accident and health insurance includes medical expense, disability income and long-term care. Other lines include credit life, which pays the balance of a loan if the borrower dies or becomes disabled, and industrial life, small policies whose premiums are generally collected by an agent on a weekly basis.

graph - SALES OF INDIVIDUAL ANNUITIES BY DISTRIBUTION CHANNELS, 2003 AND 2007 (1)

(1) Preliminary.

Source: LIMRA International.

graph - VARIABLE ANNUITY TOTAL SALES BY DISTRIBUTION CHANNEL, 2007 (1)

(1) As of December 31, 2007.
(2) Regulated by the Financial Industry Regulatory Authority.

Source: Morningstar, Inc.

NET ASSETS OF VARIABLE ANNUITIES, 1998-2007 ($ billions)

Source: Morningstar, Inc.