Introduction to variable annuities

By Steve Savant

Ash Brokerage Corporation


In 1952, variable annuities (VAs) were offered by the Teachers Insurance & Annuities Association in their College Retirement Equity Fund (TIAA-CREF), and then they were used in qualified annuities. It’s interesting to note that VAs started in college funding and qualified plans. Apparently, back in their inception inserting a deferred product into a deferred qualified plan was not an arithmetic anathema as some advisors would adamantly contend. The vast majority of insurance companies were reluctant to broaden share in the annuity market because of the state regulatory environment back in the 50s. And although there was growth in VA carriers during the 70s and 80s, the notable increase in sales erupted between 1989 and 1993.

But perhaps the greatest use of VAs, both qualified and non-qualified, came during the period between 2000 to 2006 — a period that became known as the “interest rate arms race” on income benefits. But after the market meltdown of 2008, most carriers modified their VAs, crediting lower interest rates for income and dramatically scaling back benefits. These modifications altered the value of VAs, especially in relationship to their internal expense loads. The credited rates and benefits back in the day were used to offset the internal expense loads, but that has all changed. Steve and Tim take you through a VA history lesson as they introduce you to VAs.