New York Life Insurance Co. "dusted off" an old product in 2005 when it reintroduced its immediate annuities to the market, and it has paid dividends as conservative investors seek products that can provide a steady stream of income in retirement.
Chris Blunt, a senior vice president of retirement income security at New York Life, said that immediate annuities have grown more than tenfold in the past five years, to $1.2 billion of assets under management at Dec. 31, including 34.4% growth last year.
The product is "pretty typical" for most insurance companies, he said. "It is something that everyone has had for 40 or 50 years, and we were selling about 250 a year," he said, "but then in 2005 we dusted it off, gave it some consumer-friendly features, and really put a marketing push behind it."
New York Life began selling immediate annuities in 1959. Mr. Blunt, who was promoted in December to manage the company's income annuities, investment annuities, long-term-care insurance, and mutual fund distribution, said immediate annuities remain simple in that they convert a large lump sum of cash into an income stream that can be used once the investor retires.Analysts say immediate annuities are really the exact opposite of life insurance, which pay out a large sum after customers make a series of smaller deposits during their lifetimes.
Kenneth Kehrer, the director of Kehrer-Limra in Princeton, N.J., said the reason for the "rebirth of immediate annuities" is people's changing focus. "People are aging, and they are trying to figure out how to manage their money in retirement as opposed to saving and accumulation."
Quarterly data from Kehrer-Limra show that bank sales of immediate annuities grew 20% in the third quarter, to $221 million, from the previous quarter. (The company's fourth-quarter data will be available next month.)
Mr. Kehrer said many bank wealth managers are retraining advisers to communicate with customers nearing retirement to teach them "how to manage their money and how to spend what they have spent a lifetime saving."
Analysts said that, in the past three years, many insurance companies have introduced variable annuities with an assortment of living benefits to attract investors who want a steady stream of retirement income. Mr. Kehrer said the same trend that has increased assets held in immediate annuities is helping the variable annuity business grow because the most popular variable annuities include riders featuring guaranteed withdrawals for life.
Mr. Blunt said these types of variable annuities can be "rather problematic" for underwriters during periods of economic turmoil. In April 2005, he said, Ted Mathis, New York Life's chief executive officer, "saw that a segment of the population needed pure income. They didn't want riders or options. They needed pure income. People are worried about outliving their savings. They want a product that can provide guarantees. We decided that that played right into our sweet spot."
During difficult economic cycles, Mr. Kehrer said, "variable annuities can potentially create problems for annuity underwriters because these guarantees are riskier. The only risk in an immediate annuity is life expectancy."
New York Life distributes its immediate annuities through agents, but its fastest-growing distribution channel for the product is banks, Mr. Blunt said. In the past year, bank sales of New York Life's immediate annuities grew 96.8%, to $366 million.
"Investors, including affluent investors, that invest with banks are conservative by nature," he said. "We just had to work to train our wholesalers and income specialists on how to sell through banks, and we built tools" that helped show bankers how much investors should annuitize to meet their basic expenses.
Mr. Blunt said the growth in the company's immediate annuity assets did not come as a result of higher spending on advertising and marketing. In 2005, he said, the company ran an ad with the tagline, "Retirement used to be a promise. New York Life makes it a promise again," but he said the ad was "really rather symbolic."
"This business has grown because we are out in the trenches developing distribution, not because of advertising," he said. "We have wholesalers talking to agents and bank reps, and, really, it has been a lot of hard work."
New York Life's immediate annuities will continue to grow as customers become even more conservative and continue their "flight to safer investment products," Mr. Blunt said, and he expects "significant growth" in the next 12 months even as equity markets continue to struggle.
"It is sheer demographics," he said. "Customers need income in retirement, and they are living longer. Affluent and high-net-worth individuals want to have an investment that can replace fixed-income in their portfolio[s]. They want something with very low volatility that can generate income. The muni-bond market used to be the place for conservative investors, but people are increasingly concerned about these types of products that have come under fire in recent months."
In 2006, New York Life began selling fixed immediate annuities through a partnership with AARP. Last year, it generated $130 million in sales from the partnership, up 34% from a year earlier.
