It has nothing to do with LIFO. A nonperiodic distribution, which is what your Form 1099-R represents, comes first from taxable earnings. Not until all of the taxable earnings are distributed do nonperiodic distributions begin to tap the investment in the contract.
(Of course if you established the annuity with a single payment, distributions would look like LIFO with earnings being considered to be added to the account after the single payment.)
