billion, while annuity reserves (Table 8.2) increased 6 percent to $2.5 trillion.

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1 8annuities Annuities are financial contracts that pay a steady stream of income for either a fixed period of time or for the lifetime of the annuity owner (the annuitant). Most pension and retirement plan assets held by life insurers are annuity contracts. Because they can guarantee a stream of income for life, annuities protect annuity owners against the possibility of outliving their financial resources. Annuities are sold as either immediate annuities or deferred annuities. Immediate annuities begin making annuity payments immediately, while deferred annuities defer the onset of annuity payments until some later date (typically when the annuity owner retires). During the deferral or accumulation phase, the annuity owner makes premium payments into the annuity and the savings inside the annuity grows to maximize the later annuity payments back to the annuity owner. Codification of annual statements, effective for 200 filings, changed the way certain lines of business are categorized and reported. This is particularly true of annuities and deposit-type contracts (e.g., guaranteed interest contracts or GICs). Prior to 200, deposit-type funds were included with annuities; now they are reported separately. As a result, annuity data prior to 200 is not comparable with 200 or later data. For this reason some of the tables in this chapter only report data for 2006 and billion, while annuity reserves (Table 8.2) increased 6 percent to $2.5 trillion. Annuities provide a variety of features designed to meet different needs. Depending on risk tolerance, an annuitant can choose a fixed annuity, which provides stable returns, or a variable annuity which is backed by equity investments for potentially greater, but uncertain, returns. A joint and survivor annuity ensures an income stream as long as either spouse is alive. Under some options, payouts will continue to a designated beneficiary after the annuitant s death. Group and Individual Annuities Contributions to group annuities, which are sold through employer-sponsored retirement plans, increased to $22 billion in 2007, up 5 percent from 2006 (Table 8.). Reserves for this type of annuity accounted for one-third of all annuity reserves by the end of 2007 (33%), or $843 billion (Table 8.2). Benefit payments to group annuitants decreased to $29 billion in 2007 (Table 8.3). Employer-sponsored retirement plans are divided between two types that differ according to their benefits structure. Defined benefit plans provide a specified monthly benefit during retirement. The benefit amount is usually based on an employee s salary and length of service. The employer funds such plans and bears the entire investment risk. During 2007, payments into annuities, known as considerations (Table 8.), increased 4 percent to $34

Because they can guarantee a stream of income for life, annuities protect annuity owners against the possibility of outliving their financial resources.

2 Profit-sharing, 40(k), 403(b), and 457 plans are defined contribution plans. Rather than specifying benefits and retirement income, this type of plan specifies contributions, usually as a fixed amount or a percentage of income, where the employee bears the investment risk. The benefit received under defined contribution plans is determined by contributions, investment returns, and expenses. Annuitization of the balance at retirement is not mandatory, and lump sums have been the most popular distribution method. A person also can buy an annuity directly from a life insurer. During 2007, Americans deposited $93 billion in individual annuities, up 3 percent from 2006 (Table 8.). Individual annuity owners received $43 billion in benefit payments, leaving $.6 trillion in individual annuity reserves at year-end 2007 (Tables ). Supplementary Contracts, Annuities Certain, and Other Annuities A supplementary contract is an agreement between an insurer and a life insurance policyholder or beneficiary in which the beneficiary chooses to receive the policy s proceeds over a period of time instead of as a lump sum. If this period is the lifetime of the beneficiary, the contract is a supplementary contract with life contingencies, essentially a life annuity; if the payments continue for a specific period, the contract is called a supplementary contract without life contingencies, or an annuity certain. During 2007, $27 billion was deposited into supplementary contracts without life contingencies and annuities certain, 3 percent more than in 2006 (Table 8.), and $30 billion was paid to policyholders or beneficiaries (Table 8.3), leaving a total reserve of $72 billion at the end of 2007 to back future claims (Table 8.2). Table 8. Annuity Considerations Millions Percent change /2007 Individual annuities $87,083 $92, Group annuities 5,645 2, Annuities certain and supplementary contracts without life contingencies 26,344 27,9 2.9 Total 329,07 34, Notes: NAIC does not endorse any analysis or conclusions based on use of its data. Data represent U.S. life insurers and fraternal benefit societies. Includes supplementary contracts with life contingencies. 74 American Council of Life Insurers

The benefit received under defined contribution plans is determined by contributions, investment returns, and expenses.

3 Table 8.2 Reserves for Annuity Contracts Millions Percent change /2007 Individual annuities $,537,827 $,633, Group annuities 806, , Annuities certain and supplementary contracts without life contingencies 70,387 72, Total 2,45,58 2,548, Notes: NAIC does not endorse any analysis or conclusions based on use of its data. Codification effective with 200 Annual Statement filings changed the way certain lines of business are categorized and reported, particularly deposit-type contracts, as explained in numbered footnotes. Data represent U.S. life insurers and fraternal benefit societies. Includes supplementary contracts with life contingencies. Table 8.3 Annuity Benefit Payments Millions Percent change /2007 Individual annuities $4,550 $42, Group annuities 29,538 29, Annuities certain and supplementary contracts without life contingencies 29,42 29, Total 00,508 0,902.4 Notes: NAIC does not endorse any analysis or conclusions based on use of its data. Data represent U.S. life insurers and fraternal benefit societies. Includes supplementary contracts with life contingencies. Annuities 75

5 Notes: NAIC does not endorse any analysis or conclusions based on use of its data.

4 Table 8.4 Annuity Considerations, by Year (millions) Year Individual Group 2 Other 3 Total 977 $4,552 $0,422 NA $4, ,454,885 NA 6, ,976 2,963 NA 7, ,296 6,33 NA 22, ,290 7,289 NA 27, ,96 9,448 NA 34, ,003 6,54 NA 30, ,706 27,53 NA 42, ,89 33,008 NA 53, ,7 57,595 NA 83, ,764 54,93 NA 88, ,784 59,494 NA 03, ,407 65,590 NA 4, ,665 75,399 NA 29, ,67 7,99 NA 23, ,348 7,297 NA 32, ,987 79,458 NA 56, ,832 73,07 NA 53, ,370 82,565 NA 59, ,067 92,228 NA 76, ,92 07,355 NA 97, ,446 34,047 NA 229, ,62 54,59 NA 270, ,07 63,622 NA 306, ,656 09,599 $22, , ,428 00,86 22,608 29, ,943 02,64 2,8 290, ,40 04,537 24,352 30, ,032 0,084 25, , ,083 5,645 26, , ,503 2,722 27,9 34,344 Notes: NAIC does not endorse any analysis or conclusions based on use of its data. Data represent U.S. life insurers and, as of 2003, fraternal benefit societies. NA: Not available. For 2000 and 200, includes supplementary contracts with life contingencies. 2 Beginning in 986, data reflect a change in statutory reporting methods mandated by the National Association of Insurance Commissioners. 3 Includes supplementary contracts without life contingencies and annuities certain, lottery payouts, structured settlements, and income payment options. 4 Codification effective with 200 Annual Statement filings changed the way certain lines of business are categorized and reported, particularly deposittype contracts. Since most guaranteed interest contracts (GICs) and other deposit-type funds are under group contracts, this accounting change has had a substantial effect on group annuities. 76 American Council of Life Insurers

NA 27,579 982 5,96 9,448 NA 34,644 983 4,003 6,54 NA 30,544 984 5,706 27,53 NA 42,859 985 20,89 33,008 NA 53,899 986 26,7 57,595 NA 83,72 987 33,764 54,93 NA 88,677 988 43,784 59,494 NA 03,278 989

5 Table 8.5 Annuity Reserves, by Year Year Reserves (millions) Year Reserves (millions) 950 $5, , , , , , , , , , , , , , , , $745, , , , , ,32, ,454, ,608, ,780, ,89, ,585, ,69, ,899, ,05, ,258, ,45, ,548,490 Notes: NAIC does not endorse any analysis or conclusions based on use of its data. Data represent U.S. life insurers and, as of 2003, fraternal benefit societies. NA: Not available. Codification effective with 200 Annual Statement filings changed the way certain lines of business are categorized and reported, particularly deposittype contracts. Since most guaranteed interest contracts (GICs) and other deposit-type funds are under group contracts, this accounting change has had a substantial effect on group annuities. Annuities 77

44,390 987 495,420 988 562,55 989 624,290 990 695,700 99 $745,950 992 768,25 993 825,375 994 878,460 995 972,560 996,32,494 997,454,962 998,608,494 999,780,699 2000,89,680 200,585,008 2002,69,075

annuity considerations contributed more than half (51%) (Figure 4.1).

annuity considerations contributed more than half (51%) (Figure 4.1). 4INCOME The gross income of life insurance companies comes from two main sources: premiums paid by policyholders and earnings on investments. In 200, total income of all U.S. life insurers increased 0