DTCC Analysis Shows Fixed Annuity Activity Uptick
Fixed annuities and indexed annuities are showing up on the radar of an annuity transaction processing service better known in insurance circles for its work with variable annuities.
Called Analytic Reporting for Annuities, the service analyzes data on millions of annuity transactions that the Depository Trust & Clearing Corporation (DTCC) processes daily.
The analysis, which looks at “flows” of money going into and out of annuity products, provides a window into annuity market trends not seen in traditional industry sales results.
The data may, for instance, help annuity professionals get an understanding of types of insurance products — including fixed products — that are flowing through broker-dealers. Registered reps who also have insurance licenses are typically allowed to sell fixed insurance products as long as the business passes through their broker-dealer (i.e., they can’t “sell away” from the firm).
Analytic Reporting is a service of Insurance & Retirement Services (I&RS) of National Securities Clearing Corporation, a DTCC subsidiary based in New York.
Fixed annuities are in there
Some onlookers might look at DTCC’s corporate pedigree and draw the conclusion that the DTCC only processes transactions involving securities products, but that would be incorrect.
In fact, $11 billion of the $90 billion total annuity inflows that DTCC processed last year came from fixed annuities, says Andrew Blumberg, business manager for analytic reports. The term annuity “inflows” refers to money going into the products.
But all transactions that the firm processes, even those for fixed annuities, do originate with a broker-dealer, he says. The broker-dealers include wirehouses, regional, independents, banks, among others. Some, such as independent broker-dealers, may submit transactions through clearing firms or platforms, he adds.
The firm also reports on “net flows,” which are inflows minus outflows (or money redeemed from annuities).
In 2011, among the top 10 “net flow gainers,” 7 percent of the inflows went into fixed annuities, the firm says. Smaller percentages went into indexed annuities, fixed immediate annuities and other categories.
By comparison, 79 percent went into variable annuities. That large percentage is in keeping with the company’s history.
The variable annuity root
A long-time processor of securities transactions, DTCC began expanding into variable annuity processing in the late 1990s. That expansion was triggered by requests from a few large broker-dealers and a few large insurance companies, recalls Leonard Schmitt, group director-relationship management for insurance and relationship services.
The firms were interested in centralizing their variable annuity processing at that time, he points out.
Since then, the annuity processing business has grown to the point that, in 2011,DTCC processed annuity transactions for 133 broker-dealers and 105 insurance companies (representing 41 parent/holding companies), according to DTCC’s 2011 Annuity Market Activity Report.
Blumberg says DTCC may have begun processing fixed annuity transactions shortly after it began its variable annuity processing, but he does not have data on the actual start date.
More recently, the firm expanded into transactions for variable life, variable universal life, whole life, term life and also long term care insurance, Schmitt says. This too was prompted by requests from broker-dealers and insurance carriers, he adds.
DTCC began providing its monthly analysis of annuity inflows through its online Analytic Reporting service in March 2010, according to Blumberg.
Since that time, the firm has seen increases in not only variable annuity inflows but also in fixed, equity indexed and fixed immediate annuity inflows.
For instance, according to copyrighted DTCC data that Blumberg provided to InsuranceNewsNet, there was a 34 percent increase in fixed annuity inflows, when comparing March 2010 to February 2012 figures.
The table below shows the fixed annuity inflows for the full 24-month period. There was a noticeable spike from February 2011 through May 2011, but Blumberg cautions that “we are unable to provide a cause for the increases, including the large spike in fixed annuity inflows at the beginning of 2011. Understanding the causes would require research beyond the data that we have.”
The DTCC data show that indexed and fixed immediate annuity inflows also increased when comparing March 2010 numbers to February 2012, but that the flow volume in these two lines is much smaller than that for the fixed annuity category.
For instance, indexed annuity inflows rose 181 percent when comparing in March 2010’s inflow figure of $58.1 million to the February 2012 figure of $163.3 million. The percentage increase is a lot higher than the 34 percent increase for fixed annuities, but the actual indexed inflows in February were well below the $777.6 million for fixed annuity inflows that month, so the uptick may not be meaningful.
As may be expected, the February indexed inflows also were well below the $5.1 billion for variable annuity inflows in that month (which, by the way, were up 56 percent over their March 2010 numbers).
Whether the indexed annuity category includes flows from both registered and fixed versions of the product is not known. “The transactions are submitted by the (DTCC) members and they determine which of their products fall into each product type for transactions purposes, including the indexed product type,” notes Blumberg.
The DTCC executive cautions that the increases shown in the data do not necessarily indicate an increase in industry activity or that the industry is selling more products. The increases “might only show that insurance companies and broker-dealers have chosen to process more transactions through DTCC,” he says.
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