Variable Annuity Sales Up in Q4 2010: LIMRA

Fixed annuities suffer on low interest rates

LIMRA announced Wednesday that variable annuity sales for the fourth quarter improved 17% over the same period one year ago to reach $38.5 billion. Sales grew 10% in 2010, totaling $140.5 billion for the year.

There are a couple of things happening to contribute to variable annuities' success, according to Joe Montminy, assistant vice president for LIMRA's annuity research. First, "as equities markets improve, consumers' appetite for annuities continues to grow," he told AdvisorOne. "During the financial crisis, advisors pulled back from annuities to wait for changes in the products to settle down." That started to happen around the end of 2009, according to Montminy.

"Finally, carriers are starting to make small changes to their products to make them more attractive. All of those things together led to growth in annuity sales."

Furthermore, the election rate for products with guaranteed lifetime benefit riders remains exceedingly high – in the fourth quarter the election rate was 87%, Montminy said.

At $57.6 billion, individual annuity sales rose 6% in the fourth quarter from the same period in 2009. Total annuity sales fell 7% for 2010, largely due to poor sales among fixed annuities.

Total fixed annuity sales fell 9% in the fourth quarter to $19 billion. After a "record-breaking performance" in 2009, total sales for fixed annuities in 2010 fell 27% to under $81 billion. LIMRA reports that low interest rates and spreads are to blame and doesn't foresee any improvement until economic conditions pick up.

Indexed annuities, on the other hand, had "record sales" for the second year running, bringing in over $32 billion, a 7% increase over 2009. Fourth-quarter sales improved 17% over the fourth quarter of 2009, with $8 billion.

Book value annuity sales fell 33% in the fourth quarter and were 45% lower in 2010 than in 2009. Fourth-quarter market value adjusted sales dropped 13% from the fourth quarter of 2009 to $1 billion.

Fixed immediate annuity sales were level between the fourth quarter of 2010 and the fourth quarter of 2009 at $1.8 billion; sales grew 1% between 2009 and 2010.

In 2011, expect variable annuities to continue to grow, Montminy said. Fixed products will continue to struggle, though, until interest rates improve.

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