Individual and group annuities accounted for nearly half of defined contribution plan assets, according to a new report.
Conning Research & Consulting, Hartford, Conn., published this finding in a summary of results from a new survey of the retirement income market. The study, "The Big Payout: Growing Individual Retirement Income Opportunities,” explores market opportunities associated with retirement income solutions and analyzes the challenges that insurers face in planning for the growth in the retirement income market.
At the end of 2011, the report states, individual and group annuities held 46% of all defined contribution plan assets. Conning estimates there was an additional $7.3 trillion in combined individual retirement account and defined contribution plan assets.
“Now, insurers have a growing opportunity to help individuals turn those assets into retirement income," says Scott Hawkins, analyst at Conning Research & Consulting. "Of course, these assets are attracting other competitors, primarily mutual funds that have also helped investors accumulate retirement assets. Insurers need to respond to that competition.
“However, turning those assets into a secure income stream for retirees requires managing investment volatility and longevity risk,” he adds. “Managing those risks plays to the natural competitive advantage insurers have over their competition."
"As life-annuity insurers look to the future of the retirement income market, the path to growth involves careful strategic planning," says Stephan Christiansen, director of research at Conning. "Our analysis highlights the need for insurers to meet the competitive challenge represented by the mutual fund industry, and refine their messaging to the retiree and pre-retiree segments.
“Adding to the competitive marketing complexity, insurers also face substantial investment issues related to these products, and statutory capital constraints,” he adds. “Yet those insurers that succeed in meeting these challenges may be positioned to enjoy their largest growth opportunity over the coming decade."