U.S. ANNUITY MARKETS 2017 Guaranteed Retirement Income in a Fiduciary World Overview & Methodology In its eleventh iteration, this annual report examines the retail annuity industry, emphasizing distribution, product development, product positioning, and asset management. Perspective is offered from multiple points of view, including investors, advisors, insurance companies, variable annuity (VA) sales professionals, and asset managers. Data for this report comes from proprietary surveys and interviews with industry professionals, including insurers, asset managers, and advisors. Benefits: y Understand the potential impact of the Department of Labor (DOL) Conflict of Interest Rule on the annuity industry y Explore advisor demographics and annuity use: licensing, holdings, and sales of variable annuities y Examine annuity designs that represent the greatest distribution opportunities Questions Answered: y How are insurers adapting product strategies, mainly due to the DOL? y What are the main drivers of fixed-indexed annuities recent sales successes? y Are fee-based and/or fee-only advisors embracing annuities? y Which annuity designs does Cerulli believe have the greatest future potential? y Which channels are, and will likely continue to be, the largest annuity advocates? SUBSCRIPTION DETAILS $19,000 PURCHASE INCLUDES ANNUAL COST 104 PAGES 147 EXHIBITS y Digital copy and hardcopy in color y Online access to 17 related reports y Unlimited online firm-wide access y Exhibits in Excel y Key findings y Analyst support y Interactive Report Dashboards NEW y Executive Summary Video NEW RESEARCH INCLUDED WITH SUBSCRIPTION y Ten years of The Cerulli Report U.S. Annuities and Insurance y Variable Annuity Distribution Opportunities: Broadening Appeal and Attracting New Advisors y Cerulli Special Report: Evaluating Your Variable Annuity Product Line y Variable Annuity Asset Management: Growing Assets in a New Environment y Wealth Transfer: Sizing Trends and Opportunities y State of the Variable Insurance Industry: Strategic Implications for Asset Managers and Insurers y Insurance Product Distribution Opportunities y Retirement Income: Positioning for Success For more information, contact us: ``info@cerulli.com Cerulli Interactive Report Dashboards NEW Experience Cerulli s digital platform and interact with analyses from this report With this report subscription, we re pleased to include these interactive dashboards: 1. Variable Annuity Scorecards: Compare advisor headcount, AUM, metrics, and sales by channel. 2. Advisor Annuity Use and Perception: Explore annuity sales, selection process, and perceived benefits by segmentation. 3. Household Sentiment and Ownership of Annuities: Review annuity products, income sources, and opinions from a household perspective. CERULLI ASSOCIATES info@cerulli.com www.cerulli.com
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Chapter 4 Fixed and Fixed-Indexed Annuities Exhibit 4.07 Insurers: Factors Driving Growth of Fixed-Indexed Annuity Sales, 2017 Sources: Cerulli Associates, in partnership with IRI Analyst Note: Unsolicited consumer demand and consumer-focused marketing materials were offered as options, but were not selected in 2016 or 2017. Other responses included advisor compensation and fear of interest rates rising and/or a market correction. Diminishing availability/attractiveness of VA guarantees 81% Greater understanding/acceptance among advisors and B/Ds 67% Generous living and death benefit guarantees 62% Low interest rates on traditional fixed annuities 48% More consumer-friendly pricing (e.g., surrender schedules, participation rates, commissions) 24% Increasing supply and distribution support 19% Improved advisor training and education 14% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 72 The Cerulli Report U.S. Annuity Markets 2017
Table of Contents Table of Contents: Expanded Key Questions Answered... 14 1. Which channels are most primed for variable annuity sales expansion in the years ahead?...14 2. Which annuity types stand to benefit most from the DOL Conflict of Interest Rule?...15 3. How concerned are insurers with their current capacities to offer guaranteed living benefits?....16 4. Where are the best opportunities for asset managers to gain entry into the annuity marketplace over the near term?...17 5. How can insurers increase the number of advisors who sell variable annuities?...18 6. What benefits do U.S. households report seeing purchasing a variable annuity?....19 Chapter 1: Guaranteed Retirement Income in a Post-Fiduciary World.... 20 Market Overview...21 Exhibit 1.01. Total Annuity Sales by Product Type, 2005 2022E....22 Exhibit 1.02. Top-25 Retail Variable Annuity Issuers by Sales, 2016 2Q 2017 YTD...23 Exhibit 1.03. Variable Annuity Total Sales by Share Class, 2005 2Q 2017 YTD....24 Exhibit 1.04. Investment-Only Variable Annuity Sales: Total Flows, 2010 2Q 2017 YTD....26 Fixed-Indexed Annuities...27 Exhibit 1.05. Top-20 Individual Fixed Annuity Issuers by Sales, 2016...27 Deferred Income Annuities...29 Exhibit 1.06. Fixed Annuity Sales by Product Type, 2005 2016...30 Single-Premium Immediate Annuities....30 An Outlook: VA Subadvisory Opportunities.....31 Exhibit 1.07. Retail Variable Annuity Index Fund Subaccount Assets and Net Flows, 2006 2Q 2017 YTD...31 Exhibit 1.08. Growth of Variable Product Volatility-Managed Portfolios, 2Q 2015 2Q 2017...32 Exhibit 1.09. Insurer Perspective: Greatest Obstacle in Variable Annuity Business, 2017...34 Risk Management: Variable Annuities...34 Regulation............................................................................................................. 37 Exhibit 1.10. Insurers Perceived Sales Impact of DOL Conflict of Interest Rule by Channel, 2017...37 Outlook...38 Exhibit 1.11. Share of Sales of Annuity Product Type, 2010 2022E.......................................................... 39 The Cerulli Report U.S. Annuity Markets 2017 7
Table of Contents Chapter 2: Product Opportunities and Sales... 40 Exhibit 2.01. Total Annuity Sales by Product Type, 2005 2022E....42 Exhibit 2.02. Share of Sales of Annuity Product Type, 2010 2022E.......................................................... 43 Exhibit 2.03. Surveyed Insurers Annuity Offerings, 2017...44 Exhibit 2.04. Insurer Perspective: Greatest Obstacle in Variable Annuity Business, 2017...45 Exhibit 2.05. Anticipated Availability of Living Benefits in the Next Three Years, 2017...46 Exhibit 2.06. Insurers Capacity for Guaranteed Lifetime Income Benefits, 2017...47 Exhibit 2.07. Potential Impact of Interest Rates on Guaranteed Lifetime Income Benefits, 2017...48 Exhibit 2.08. Investment-Only Variable Annuity Sales: Total Flow, 2010 2Q 2017 YTD....49 Exhibit 2.09. Insurer Perspective: Most Important Features in an Investment-Only VA, 2017....50 Exhibit 2.10. Average Number of Investment Options with and without Primary Living Benefit Options, 2017...51 Exhibit 2.11. Most Attractive VA Subaccount Options for Future Sales Potential, 2017...52 Chapter 3: Variable Annuity Sales and Assets... 53 Exhibit 3.01. Retail Variable Annuity Total New Sales, 2006 2Q 2017 YTD...55 Exhibit 3.02. Variable Annuity Net Sales as Percentage of Gross Sales, 2006 2Q 2017 YTD...56 Exhibit 3.03. Projected Retail Variable Annuity Industry Gross and Net Sales, 2016 2022E...57 Exhibit 3.04. Top-25 Retail Variable Annuity Issuers by Sales, 2016 2Q 2017 YTD...58 Exhibit 3.05. Retail Variable Annuity Industry Assets and Growth, 2005 2Q 2017 YTD...59 Exhibit 3.06. Projected Retail Variable Annuity Industry Assets and Growth, 2017E 2022E...60 Exhibit 3.07. Top-25 Retail Variable Annuity Contracts by Sales, 2Q 2017 YTD...61 Exhibit 3.08. Variable Annuity Total Sales by Share Class, 2005 2Q 2017 YTD....62 Exhibit 3.09. Variable Annuity Total Sales by Share Class by Distribution Channel, 2Q 2017 YTD...63 Chapter 4: Fixed and Fixed-Indexed Annuities.... 64 Exhibit 4.01. Fixed Annuity Sales, 2005 2016...66 Exhibit 4.02. Fixed Annuity Sales by Product Type, 2005 2016...67 Exhibit 4.03. Fixed Annuity Sales by Distribution Channel, 2005 2016...68 Exhibit 4.04. Fixed-Indexed Annuity Sales, 2005 2016....69 Exhibit 4.05. Fixed-Indexed Annuity Sales as Percentage of Total Fixed Annuity Sales, 2005 2016...70 Exhibit 4.06. Fixed-Indexed Annuity Assets as Percentage of Total Fixed Annuity Assets, 2005-2016...71 Exhibit 4.07. Insurers: Factors Driving Growth of Fixed-Indexed Annuity Sales, 2017...72 Exhibit 4.08. Top-20 Individual Fixed Annuity and Indexed Issuers by Sales, 2016...73 8 The Cerulli Report U.S. Annuity Markets 2017
Table of Contents Chapter 5: Distribution Strategies... 74 Exhibit 5.01. Total Annuity Industry Sales by Distribution Channel, 2005 2016...76 Exhibit 5.02. Retail Variable Annuity Total Sales by Distribution Channel, 2005 2Q 2017 YTD...77 Exhibit 5.03. Retail Variable Annuity Total Sales by Distribution Channel Cerulli View, 2007 2016....78 Exhibit 5.04. Expectations of VA Sales Over the Next Three Years by Channel, 2017...79 Exhibit 5.05. Insurers Perceived Sales Impact of DOL Conflict of Interest Rule by Channel, 2017...80 Exhibit 5.06. Insurer Perspective: Anticipated Sales Impact of the DOL Conflict of Interest Rule by Annuity Product, 2017...81 Exhibit 5.07. I-Share Class Variable Annuity Sales, 2005 2Q 2017 YTD...82 Exhibit 5.08. Methods for Increasing the Number of Advisors Who Sell Variable Annuities, 2017...83 Exhibit 5.09. Insurers Distribution Headcounts Dedicated to Annuities, 2017...84 Chapter 6: Distribution Channels and Annuity Scorecards... 85 Exhibit 6.01 - Part 1. Description of Advisor Channels, 2017....86 Exhibit 6.01 - Part 2. Description of Advisor Channels, 2017....87 Exhibit 6.02. Advisor-Managed Asset Marketshare, 2010 2016...88 Exhibit 6.03. Top-25 Broker/Dealer Networks by Advisor Headcount, 2016...89 Exhibit 6.04. Wirehouse Variable Annuity Scorecard, 2016...90 Exhibit 6.05. National and Regional Broker/Dealer Variable Annuity Scorecard, 2016...91 Exhibit 6.06. Independent Broker/Dealer Variable Annuity Scorecard, 2016...92 Exhibit 6.07. Hybrid RIA Variable Annuity Scorecard, 2016...93 Exhibit 6.08. Independent RIA Variable Annuity Scorecard, 2016....94 Exhibit 6.09. Insurance Broker/Dealer Variable Annuity Scorecard, 2016....95 Exhibit 6.10. Retail Bank Broker/Dealer Variable Annuity Scorecard, 2016...96 The Cerulli Report U.S. Annuity Markets 2017 9
Table of Contents Chapter 7: Advisor Annuity Use in Retirement Planning... 97 Exhibit 7.01. Advisor Market Sizing Funnel, 2016...98 Exhibit 7.02. Advisors Licensed to Sell Variable Annuity Products by Channel, 2016...99 Exhibit 7.03. Advisors Currently Holding Annuities by Channel, 2016....100 Exhibit 7.04. Active Annuity Sellers by Tier and Channel, 2016....101 Exhibit 7.05. Variable Annuity Sales, 2016...102 Exhibit 7.06. Variable Annuity Contracts by Tier and Channel, 2016...103 Exhibit 7.07. Marginal Variable Annuity Sales by Tier and Channel, 2016....104 Exhibit 7.08. Number of Variable Annuity Contracts Sold in Past 12 Months, 2017...105 Exhibit 7.09. Factors Advisors Consider When Investing in an Annuity, 2017...106 Exhibit 7.10. Factors Advisors Consider When Selecting a Variable Annuity Provider by Channel, 2017....107 Exhibit 7.11. Reasons for Not Recommending Variable Annuities by Channel, 2017...108 Exhibit 7.12. Advisors Views on the Benefits of Emerging Annuity Designs, 2017...109 Chapter 8: Households Retirement Planning and Annuity Use... 110 Exhibit 8.01. Investor Economic Outlook, 2Q 2017....112 Exhibit 8.02. Retirement Households Top Concerns and Most Important Financial Goal, 2Q 2017...113 Exhibit 8.03. Households That Have a Formal Retirement Income Plan by Age Range, 2Q 2017...114 Exhibit 8.04. Percent of Households by Age with Formal Retirement Income Plan Databank, 2Q 2017...115 Exhibit 8.05. Retirement Households Income Sources by Age Range, 2Q 2017...116 Exhibit 8.06. Retirement Households Income Sources Databank, 2Q 2017....117 Exhibit 8.07. Ownership of Annuity Products, 2Q 2017...118 Exhibit 8.08. Households Reasons for Choosing Variable Annuity Policy Over Alternatives by Investable Assets, 2Q 2017...119 Exhibit 8.09. Households Reasons for Choosing Variable Annuity Policy Over Alternatives Databank, 2Q 2017....120 Exhibit 8.10. Households Reasons for Choosing Fixed Annuity Policy Over Alternatives by Investable Assets, 2Q 2017....121 Exhibit 8.11. Households Reasons for Choosing Fixed Annuity Policy Over Alternatives Databank, 2Q 2017..................... 122 Exhibit 8.12. Households Primary Reason for Variable Annuity Purchase, 2Q 2017...123 Exhibit 8.13. Households Primary Reason for Fixed Annuity Purchase, 2Q 2017...124 10 The Cerulli Report U.S. Annuity Markets 2017
Table of Contents Chapter 9: Asset Management Opportunities... 125 Exhibit 9.01. Variable Annuity Assets by Structure and Distribution, 2006 2Q 2017...126 Exhibit 9.02. Top-25 Unaffiliated Retail Variable Annuity Asset Managers, 2Q 2017....127 Exhibit 9.03. Top-25 Retail Variable Annuity Subaccount Funds by Net Flows, 2Q 2017 YTD...128 Exhibit 9.04. Total Subadvised Retail Variable Annuity Assets and Net Flows, 2006 2Q 2017 YTD....129 Exhibit 9.05. Top-10 Retail Variable Annuity Single Subadvisors, 2Q 2017...130 Exhibit 9.06. Top-10 Retail Variable Annuity Unaffiliated Single Subadvisors, 2Q 2017...131 Exhibit 9.07. Top-10 Subadvised Retail Variable Annuity AUM by Insurer, 2Q 2017...132 Exhibit 9.08. Top-10 Unaffiliated Subadvised Retail Variable Annuity AUM by Insurer, 2Q 2017...133 Exhibit 9.09. Variable Insurance Trust Assets and Net Flows, 2006 2Q 2017 YTD....134 Exhibit 9.10. Top-25 Unaffiliated Variable Insurance Trusts by Marketshare, 2Q 2017...135 Exhibit 9.11. Fastest-Growing Variable Insurance Fund Managers by Three-Year CAGR, 2016...136 Exhibit 9.12. Percentage of Variable Annuity Assets by Asset Class, 2005 2Q 2017...137 Exhibit 9.13. Unaffiliated Variable Annuity Subadvisory and VIT Assets as a Percentage of Total Variable Annuity Assets by Asset Class, 2Q 2017...138 Exhibit 9.14. Retail Variable Annuity Embedded-Advice Fund Assets and Growth, 2006 2Q 2017 YTD....139 Exhibit 9.15. Retail Variable Annuity Embedded-Advice Fund Net Flows, 2006 2Q 2017 YTD....140 Exhibit 9.16. Retail Variable Annuity Index Fund Subaccount Assets and Net Flows, 2006 2Q 2017 YTD...141 Exhibit 9.17. Index Funds as a Percentage of Total Retail Variable Annuity Assets by Asset Class, 2Q 2017....142 Exhibit 9.18. Top-15 Index Fund Subaccounts within Retail Variable Annuity Products by Assets, 2Q 2017....143 Exhibit 9.19. Retail Variable Annuity Alternative Fund Assets and Net Flows, 2006 2Q 2017 YTD...144 Exhibit 9.20. Top-10 Alternative Variable Insurance Funds by Assets, 2Q 2017....145 Index of Companies... 146 The Cerulli Report U.S. Annuity Markets 2017 11
Index of Companies Index of Companies AIG... 24, 33, 73 AXA... 20, 24, 25, 27, 35, 36, 58, 61, 130 AllianceBernstein... 36, 130 Allianz... 25, 28, 29, 32, 73 American Century... 36 American Equity... 28, 73 American Funds... 36, 126, 127, 134, 135 American General... 17 Ameriprise... 89 Athene... 73 BNY Mellon... 131, 143 BlackRock... 28, 36 Brighthouse... 25, 26, 58, 143 Capital Group... 36 Commonwealth Financial Network... 92 Credit Suisse... 136, 138 Delaware... 28, 33 Deutsche Bank... 28, 33 Dimensional Fund Advisors... 136 Edward Jones... 63, 85, 89, 91 Fidelity Investments... 29, 30, 36, 63, 126, 127, 134, 135 Forethought... 28, 73 Franklin Templeton... 36, 127 Global Atlantic... 73 Goldman Sachs... 17, 28, 33 Guardian... 31, 32 Hartford... 31, 36, 132 Invesco... 36 ishares... 17 J.P. Morgan... 28, 60, 89 Jackson National... 17, 19, 24, 26, 32, 49, 53, 58, 61, 62, 127, 128, 130-133, 142, 143 LPL Financial... 89, 92 Levin Capital... 33 Lincoln National... 17, 24, 25, 29, 61, 130, 136 Lord Abbett... 36 MFS... 36 146 The Cerulli Report XXXX 2017
Index of Companies MassMutual... 30 Merrill Lynch... 33, 89 MetLife... 25, 26, 38, 58, 143 Milliman... 17, 32, 33, 47, 130, 131 Morgan Stanley... 36, 89, 90 Morningstar... 12, 53, 145 National Planning Holdings... 89 Nationwide... 28, 29, 73 New York Life... 17, 29, 30, 61, 64, 68, 73 Northwestern Mutual... 29, 30 Ohio Nationa... 128, 137 Oppenheimer... 36 PIMCO... 17, 130, 131 PNC... 29 Pioneer... 36 Principal... 30, Prudential... 25, 58, 62, 73, 127, 130, 132, 133, 140 Raymond James... 28, 36, 69, 91 Security Benefit Life... 73 State Street (SSgA)... 17, 33 Sun Trust... 29 SunAmerica... 33 Symetra... 28 T. Rowe Price... 17, 33, 130, 131 TI... 24, 78 The Guardian... 31 Transamerica... 17, 33, 89, 130 UBS... 33, 90 VALIC... 17 Vanguard... 33, 127 Voya Financial... 20, 35, 132 Wellington... 33, 130, 131 Wells Fargo... 29, 89, 96 Western & Southern... 30 Zurich Life... 20, 35 The Cerulli Report XXXX 2017 147