Supply of VAs with GLBs projected to hit $142.7 billion

The high and low estimates of Cerulli’s projected sales capacity this year for VAs with GLBs are $153.1 billion and $132.4 billion, respectively. The high and low estimates of Cerulli’s projected sales capacity this year for VAs with GLBs are $153.1 billion and $132.4 billion, respectively.

New research projects an average increase this year in the market capacity for variable annuities of $18.7 billion.

Cerulli Associates discloses this estimate in a report, “Annuities and Insurance 2013: Balancing Shrinking Supply and Increasing Demand for Guarantees.” The study pegs the average projected capacity of VAs with living benefits of $142.7 billion in 2013. This compares with new sales of VAs with optional living benefit guarantees — among them the guaranteed minimum income, withdrawal and accumulation benefits — of $124 billion in 2012.

The high and low estimates of Cerulli’s VA projected capacity this year are $153.1 billion and $132.4 billion, respectively. The estimates are based on data from Morningstar’s Annuity Research Center.

“[C]ompared to previous sales volumes, Cerulli remains confident that the VA industry can meet present-day consumer demand,” the report states. “However, much like Cerulli’s 2012 assessment, we believe there is negligible room for growth.

“Cerulli continues to stress the ramification that could echo throughout the industry if another major VA carrier were to seriously de-risk products or cease sales altogether,” the survey adds. “Cerulli has confidence that these actions could result in spillover business that other carriers do not desire or may not be able to manage.”

Such a result, the report warns, could “overwhelm” other life insurance companies or the whole industry.

The report reveals a rough parity among surveyed insurers and asset managers as to anticipated availability of living benefit guarantees in the next three years:

 

Insurers

Asset managers

Increased number of offers

23.1%

21.1%

Remain the same as today

26.9%

31.6%

Decreased number of offerings

50.0%

47.4%

When Cerulli questioned 401(k) plan participants ages 55 and older about how large a lump sum premium would be needed to receive an annuity of $500 per month for life starting at age 65, an overwhelming majority (95.6 percent) underestimated the amount required: between $90,000 and $100,000 for a 65-year-old female.

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