September 1, 2010

U.S. Sales of Fixed Annuities Saw 18% Jump in Q2

Sales in Q3 likely to increase 10% over Q2, Beacon Research predicts

U.S. sales of fixed annuities totaled an estimated $19.4 billion in the second quarter, an 18% jump from first-quarter sales, according to Beacon Research's Fixed Annuity Premium Study released Monday, August 30.

The $19.4 billion sales figure is a significant drop, 30%, from the unusually strong fixed annuities sales in second quarter 2009, which totaled $27.8 billion, Beacon reports.

"The spread between fixed annuity and Treasury rates has widened since second quarter, and the flight to safety has intensified. These conditions suggest a potential quarter-to-quarter sales increase of about 10%," said Jeremy Alexander, CEO of Beacon Research, in a statement. "Actual results will depend on the capacity and willingness of issuers to write new business, of course. Longer term, we also expect rising demand to support growth in fixed annuity sales. The public will be more risk-averse for some time to come; there is wide recognition of the need to save for retirement, and the value of tax deferral seems likely to increase."

Judith Alexander, Jeremy's sister and director of sales and marketing at Beacon Research, said in a phone interview that the most important factor that affects fixed-annuity sales "is the competitiveness of the fixed annuity rate relative to other conservative interest bearing investments. That generally counts for 80% of the movement in sales."

The competitiveness of the fixed annuity rate, she explains, "is generally governed by credit spreads--the difference between corporate bond and Treasury rates--and the fatter the spread, the more competitive fixed annuities can be compared to bank CDs and Treasuries." The credit spread has widened, she says, "so that suggests a 10% increase for third quarter over second quarter" fixed-annuity sales.

According to Beacon, the top five companies in fixed annuity sales in the second quarter were:

Total Fixed Annuity Sales (in thousands)

New York Life 1,740,520

Allianz Life 1,680,253

Aviva USA 1,613,045

Western National Life (NYSE: AIG) 1,293,876

American Equity Investment Life Insur. (NYSE: AEL) 1,046,737

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