‘Flight to Safety’ Prompts Higher Fixed Annuity Sales

Despite low rates, fears of double dip drive investors

Worried investors are searching for any steady returns. (Photo: AP) Worried investors are searching for any steady returns. (Photo: AP)

Second quarter fixed annuity sales overcame falling interest rates to post their second consecutive quarter-to-quarter increase. Beacon Research, which studies annuities, reports sales improved 8% from the prior quarter to $20.4 billion, and all but one product-type grew. 

According to Beacon, income annuities advanced 30% to $2.3 billion and indexed annuities grew 18% to $8.4 billion. Fixed-rate MVAs rose 4% to $1.5 billion and fixed rate non-MVAs fell 5% to $8.2 billion.

“We anticipated the sequential growth in both indexed and income annuities,” Jeremy Alexander, CEO of Beacon Research, said in a statement. “Indexed annuity cap rates trended lower, but still looked good compared to the quarter’s declining fixed rates on annuities and CDs. Their guaranteed lifetime income benefits were especially attractive during a time of reduced consumer confidence. The secure personal pensions provided by income annuities were appealing for the same reason.”

Alexander added that the firm expected falling interest rates to dampen sales of both fixed rate annuity types, but yield-seeking purchasers “apparently appreciated the somewhat higher rates offered by MVAs.”

Year-to-date 2011 sales increased 3% to $39.3 billion from first half 2010. Growth in fixed rate non-MVAs (8% to $16.8 billion) and income annuities (2% to $4.0 billion) more than compensated for declines in fixed rate MVAs (- 4% to $3.0 billion) and indexed annuities (-1% to $15.6 billion).

Sales were flat compared to the second quarter of 2010. Improvements in fixed rate non-MVAs (up 4%) and income annuities (up 3%) were balanced by fixed rate MVA and indexed annuity declines of 12% and 2%, respectively.

According to Beacon, Western National was again the quarter’s sales leader. Allianz and New York Life traded places, with Allianz in second place and New York Life coming in third. American Equity and Aviva continued in fourth and fifth place, respectively. 

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