Untapped Annuities Product Provides Larger Payouts and Potential Market Growth

• Kim McKeown
• Marketing & Public Relations Program Manager, SOA
• 847-706-3528
• New Report From Society Of Actuaries, LIMRA International Addresses Substandard Annuities For Retirees

Chicago, Ill.–Providing enough income during retirement is a challenge and concern for all generations, particularly today's baby boomers. Annuities serve as a financial planning solution designed to provide a guaranteed source of income through retirement. The Substandard Annuities report, launched today, jointly sponsored by the Society of Actuaries (SOA) and LIMRA International with supporting research conducted by Ernst & Young, provides vital insight to insurers on the challenges, risks and benefits associated with offering substandard annuities. This untapped annuity product could generate one to two billion dollars in annuity sales for the insurance industry by 2009, if the product achieves its potential. This could equate to a tripling of the current market, but the report notes the need for more industry consideration and consumer awareness.

Substandard annuities offer larger payouts for impaired risk individuals with shorter-than-average life expectancies than standard immediate annuities. Medical underwriting, age-ratings and impaired risk are the three dimensions for addressing individuals for a substandard annuity. report identified three primary factors that are driving the need for products that offer a guaranteed lifetime income: the decreased number of defined benefit pension plans available; the increased prevalence of defined contribution retirement plans and finally, fears of potential cuts in Social Security benefits. With these current needs in mind and recognizing a population with health–impaired risk, the report stated that annuity providers may examine entering the substandard annuities market or keep apprised of the immediate annuities market to account for changing market practices.

Actuaries are involved in developing solutions for longevity risk, which is guaranteeing financial security for retirees who live to a higher age," said Noel Abkemeier, FSA, MAAA, and Chair of SOA's oversight committee for the project. "By developing and offering substandard annuities, insurance companies can broaden the product to cover a larger portion of retirees seeking a lifetime cash flow. However, before entering this market, insurance providers must evaluate the financial impact to profits and premium revenue of launching a substandard annuity product."

Current substandard annuities comprised only four percent of the total immediate annuity contracts in 2004.

"There are major barriers in offering substandard annuities from narrow distribution of the product and low public awareness to underwriting resources and the number of annuity providers given the small market size currently," said Eric T. Sondergeld, ASA, CFA, MAAA, corporate vice president and director, LIMRA International. "With the increased need in retirement planning for an aging population, substandard annuity providers have an opportunity to gain more in the annuities market."

About the Report
The Substandard Annuities report includes a review of the market, risk management issues, competition factors and future growth of the market. The report utilizes the insight from nine substandard annuity providers in the United States and also analyzes the approach of the United Kingdom's substandard annuities and underwriting, which serves a large and representative segment of the population. The report notes the importance of well–informed underwriting in providing accurate estimates of mortality and longevity for substandard annuity rates. For the full report visit Substandards Annities Report.

About LIMRA International
LIMRA International is a worldwide research, consulting, and performance improvement organization that helps more than 800 insurance and financial services companies in 60 countries increase their marketing and distribution effectiveness. To learn more visit Limra.com.

About Ernst & Young
The Insurance and Actuarial Advisory Services (IAAS) practice of Ernst & Young includes 150 professional staff with more than 90 credentialed actuaries throughout the United States and Canada. IAAS delivers actionable business advice to its clients in the L/H and P/C insurance industries. IAAS employs financial modeling and other quantitative analysis techniques and technologies to assist clients in making decisions that will improve performance and achieve competitive advantage. To learn more visit Ey.com.