Conference Call: Industry digs for solutions to boost annuity popularity

Depressed equity markets, bad publicity over class actions and lack of awareness among investors are doing little for the popularity of annuities.

And the industry is eager to do something about it – from a new TV ad campaign to pushing for tax changes.

With the stock market down more than 15% from last year’s high, insurance company executives gathered recently at the National Association for Variable Annuities’ annual marketing conference to discuss strategies to broaden the appeal of annuities.

Over the past decade, life insurers such as Nationwide Financial Services, Lincoln National Corp. and Allmerica Financial Corp. have pushed into variable annuities, linking their own earnings to movements in the equity markets, since variable-annuity fees are based on a percentage of assets under management.

That approach produced robust revenue growth during the bull market of the 1990s. But the equity markets’ retreat over the last year has shrunk annuity assets. Companies are scrambling to attract investors.

But more than 75% of consumers don’t even understand what an annuity is, complained Mark Mackey, president and chief executive of NAVA, the Reston, Va., industry trade group.

Growth hampered

In addition to the impact of the depressed equity markets, annuity sales growth is also being hampered by negative publicity from class actions and from enforcement actions by the Securities and Exchange Commission and the National Association of Securities Dealers over sales practice abuses and misleading advertising.

Mr. Mackey is hoping to offset the bad news with a $36 million, three-year print and cable TV national ad campaign. The trade group is aiming to raise $12 million from industry participants to underwrite the campaign’s first year. Initial ads are scheduled for this fall.

emphasis on monitoring

In addition, with only an estimated 44 cents of every dollar of annuity sales representing new money, NAVA is increasing its focus on monitoring net industry sales.

The trade group has struck a data-collection agreement with the Variable Annuity Research and Data Service in Marietta, Ga., which tracks annuity gross sales trends. Under that agreement, the service will collect net sales data based on new reporting criteria developed by NAVA and will share the results with the trade group.

NAVA will analyze sales much as the Investment Company Institute in Washington does for the mutual fund industry.

NAVA also expects to report gross sales for fixed annuities and variable life insurance in October. The trade group will add net sales reporting for those products next year.

“It depends on how quickly we can get the member companies to respond,” says Mr. Mackey.

On the legislative front, Joseph McKeever III, an attorney in the Washington office of Davis & Harman LLP, told conference attendees that insurance industry executives are monitoring efforts by the ICI to win tax deferral on reinvested mutual fund capital gains distributions. Mr. McKeever is also an adviser to the Committee of Annuity Insurers, a coalition of 38 life insurance companies that sell annuities.

Rep. Jim Saxton, R-N.J., reintroduced a bill in January that would allow mutual fund investors to defer current taxes on fund capital gains distributions up to $3,000 ($6,000 for joint filers) provided the distributions are automatically reinvested. The deferred taxes would be due upon sale of the shares.

The annuity industry is backing a similar initiative to reduce taxes on lifetime annuity payouts.

Legislation is expected to be introduced this month to tax lifetime annuity payouts at capital gains rates, which are capped at 20%, instead of current ordinary income rates, which can go as high as 39.6%.

Mr. McKeever says the initiative will apply to annuities owned outside of qualified retirement plans and is aimed at encouraging annuity holders to annuitize.

Even though an industrywide coalition – including NAVA, the Committee of Annuity Insurers and the American Council of Life Insurers – is pushing for the proposal, passage this year is unlikely.

“Like any new proposal, it will take time to educate people,” says Mr. McKeever of the legislation. “But sometimes lightning strikes.”