NSCC '96 ANNUAL REPORT: Annuities

Since late in 1995, NSCC has been working very closely with insurance carriers and broker dealers to develop a centralized and automated solution for processing annuities transactions.

The market for both fixed and variable annuities has already grown substantially since the beginning of the decade, reaching $72 billion in 1996 from just $12 billion in 1990. Some market analysts have predicted annuity sales could exceed $165 billion by the year 2000.

While insurance companies in the past have sold both fixed and variable annuities directly, there's growing interest in using the distribution network of brokers, banks and other financial advisors. These networks now account for approximately 45% of variable annuities sales, and that percentage is expected to increase significantly in the future. As NSCC has found in its long experience working in other market sectors, gaining greater processing efficiency and connectivity of market participants is essential to continued growth.

But providing services to a new market segment and a completely new set of participants can be quite challenging for any service organization. As NSCC met with industry representatives and regulators, we found that meeting the unique needs of this financial sector would take time - and getting it right was our highest priority.

During 1996, NSCC made substantial progress on the development of our Annuity Processing System (APS). Pilot testing of the new system is expected to begin at the end of the second quarter in 1997, with The Hartford, Lincoln National, Raymond James (through the Planning Corp. of America) and Edward Jones. An expanded roll out of APS will follow later in the year.

APS will provide a centralized communication link to connect insurance carriers with broker/dealer firms, banks and other financial advisory organizations. The system will eliminate current manual processing, reducing both time and cost associated with processing annuities.

Initially, APS will offer participants the ability to communicate on a daily basis information regarding annuity contract positions and valuations of the underlying assets, as well as settlement of commission monies. Later enhancements will expand APS to include the processing of annuity contract applications and settlement of premium payments.

We expect APS to uphold NSCC's long-standing tradition of quality and reliability. And like our experience in mutual funds, over time, APS will expand and win industry confidence.

Financial Information
1996 Financial Section

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