Variable Annuity Activity Rises in Q2

Sales, benefit changes continue to increase

A pair of reports released this week from LIMRA and the Insured Retirement Institute found that variable annuities remain a popular investment in 2011.

Annuity industry estimatesVariable annuities sales increased by 16% in the second quarter, according to LIMRA’s U.S. Individual Annuities Sales survey, released Thursday. This is the fifth consecutive quarter of increasing sales of the instrument.

For the first half of 2011, annuity sales are up 20% overall, Joseph Montminy, LIMRA assistant vice president of annuity research, said in a statement.

“Recent market volatility will certainly affect third quarter VA sales,” Montminy said, “but consumer demand for guaranteed income protection will continue to drive sales of VAs with guaranteed living benefit riders.”

In the second quarter, 87% of new VA sales elected such a rider when it was available, he added.

Total annuity sales increased 9% over the second quarter of 2010, to $62.4 billion. For the year-to-date, annuity sales are over $122 billion.

Fixed annuity sales have struggled, however, due to low interest rates. Sales fell 1% in the second quarter compared with the second quarter of 2010, but grew 6% over the first quarter of 2011.

Indexed annuities likewise fell 1% compared with the prior year period, but increased 14% from the first quarter of 2011 to over $8 billion. LIMRA noted that now indexed annuity sales are “close to the record levels experienced in 2010.”

The Insured Retirement Institute released a survey on Wednesday that confirms LIMRA’s findings on variable annuity activity. In a report compiled by Morningstar based on first-quarter 2011 data, IRI found new variable annuity sales increased 23% over the first quarter of 2010 to $38 billion.

“The upward trajectory of new variable annuity sales that propelled the industry into record territory has continued in earnest this year as product innovation made notable strides,” Cathy Weatherford, IRI president and CEO, said in a statement.

IRI found that in addition to an increase in sales, carriers stepped up their product development efforts in the second quarter. There were 162 product changes, according to John McCarthy, product manager of annuity solutions for Morningstar, a 226% increase over the first quarter.

The lifetime guaranteed minimum withdrawal benefit was the most popular, but IRI noted a return to guaranteed minimum accumulation benefits as well. MetLife enhanced its guaranteed minimum income benefit rider.

“We don’t expect product development to remain at the same brisk levels for the rest of 2011, though we continue to expect the pendulum to swing back toward more generous benefits going forward,” McCarthy wrote in the report.

Weatherford noted, however, that living benefits are valuable to investors who aren’t likely to turn away from them in 2011.

“Given the extensive development of living benefits, and contract fees remaining low, we will likely see an expanded reliance on guaranteed lifetime income strategies by investors in the second half of the year,” she added.

Update: An earlier version of this story identified John McCarthy as product manager of annuity solutions for IRI, not Morningstar.

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