the long, strange trip of Variable ANNUITIES

Simple annuity contracts (annua, in Latin) were used by the Roman moneyed class. Annuities were also sold in medieval Europe, and from the 17th century on were offered by governments in Europe and the United States as civil-service perks. They were also popular among merchant ship captains to provide for their families should they be hung from a yardarm by pirates.

On the business end, Sir Edmond Halley, who first predicted the path of the comet bearing his name, got into the act in 1693 by publishing the first scientific mortality tables, precursors of the actuarial tables that govern modern annuitization.

More recent milestones in the development of the variable annuity in the United States include:

1812 The Pennsylvania Co. for Insurance on Lives and Granting Annuities incorporates, becoming the first U.S. company to sell only annuities (fixed-rate) and life insurance.

1918 Teachers Insurance and Annuity Association (TIAA) is founded with a $1 million grant from the Carnegie Corp. of New York, as a non-profit offering college teachers fixed-rate annuities for their retirement.

1934 President Franklin Delano Roosevelt signed the Securities Exchange Act of 1934, regulating sale of securities — which will come to include variable annuities — through broker-dealers registered with the brand-new Securities and Exchange Commission.

1940 The Investment Company Act lists rules on variable-annuity investment accounts.

1952 The College Retirement Equities Fund (the Cref side of TIAA-Cref) is created to offer the first variable annuity fund to its members as an inflation-fighting supplement to TIAA’s fixed annuities.

1954 Participating Annuity Life Insurance Co. (Palic), is begun as a graduate school project of University of Arkansas economics Professor Harold A. Dulan. A tiny, little-noticed enterprise, Palic is licensed in Arkansas to sell the first variable annuity contract to the general public.

1955 As life insurance companies, investment brokers and the Securities and Exchange Commission bicker over whether variable annuities should be registered as securities, the Variable Annuity Life Insurance Co. is incorporated and dissolved before it makes its first sale. In the same year, financial planner John D. Marsh, generally considered the father of the modern variable annuity, founds another corporation also named Variable Annuity Life Insurance Co. Inc. (Valic), which becomes the first to market them nationally.

1956 The Equity Annuity Life Insurance Co. (Ealic), controlled by the American General Insurance Co., is incorporated.

1959 The Supreme Court rules that the variable annuity is indeed a security, subject to regulation by the SEC under the 1934 Securities Exchange Act. Palic lies low and avoids SEC attention; Valic forges on and accepts the new level of regulation.

1960 Valic issues its first prospectus for a variable annuity for the general public on May 13, now considered to be the variable annuity’s birth date.

1961 President John F. Kennedy signs Public Law 87-370, which gives the first big boost to variable annuity sales by allowing public-school teachers to buy them tax-deferred, as employees of religious and charitable organizations had been doing since 1958. In the first big test, 80% of teachers in Florida’s Dade County pick variable over fixed-rate annuities.

1966 John Marsh, who had left Valic, now returns from semiretirement as a thoroughbred breeder to buy a controlling interest in tiny Palic.

1967 Palic, with Marsh as president, is acquired by Aetna Life Insurance Co. In the same year, Valic is acquired by American General, which merges it with Ealic. The new, improved Valic becomes the biggest U.S. seller of variable annuities to individuals.

1979 Spectrum combination fixed/variable annuities, a joint venture of Massachusetts Financial Services and Nationwide Life Insurance, are the first to offer a contingent deferred sales charge, or back-end load, in a successful effort to boost sales.

1980 U.S. sales of variable annuities total $2.5 billion.

1982 The Tax Equity and Fiscal Responsibility Act clears up many regulatory questions and locks in variable annuities as tax-deferred retirement vehicles rather than short-term tax shelters which were doomed to be largely eliminated by Congress and regulators in 1986.

1986 The Tax Reform Act reduces or eliminates tax-deferred status for many other retirement plans, making variable annuities even more attractive.

1990 U.S. sales of variable annuities reach $18 billion.

1998 U.S. sales of variable annuities hit $98 billion.