Variable Annuities Set to Drive Industry to $150 Billion in 2011

Year-over-year sales continue to increase, despite sluggish 3rd quarter

Annuity sales fell in the third quarter from the second quarter, but are up from the same period one year ago by 5%, the Insured Retirement Institute announced on Nov. 8. Sales of annuity products increased to $57 billion from $54.8 billion in the third quarter of 2010, largely on success in the variable annuity space. From the second quarter of 2011, however, sales industry wide fell 6%.

Cathy Weatherford, president of IRI, told AdvisorOne that the slowdown in the third quarter is to be expected, though.

Cathy Weatherford, President, IRI“We went back and looked at data from the last five years and saw that the third quarter period is when sales slow down a little bit,” Weatherford (left) said Monday. “Summer seems to be slow months when people are thinking about vacations and are not focused on their portfolios.”

The fourth quarter is often the strongest, she added.

Variable annuities are a large part of that growth. “Up significantly from year-ago levels, third-quarter variable annuity sales of $39.1 billion put the industry on track this year to exceed $150 billion in sales for the first time since 2008,” Frank O’Connor, director of insurance solutions for Morningstar, said in a statement.

Variable annuity sales are down 2% from the second quarter, but rose 14% from the third quarter of 2010.

Fixed annuities did not experience the same success, with sales dropping from the second quarter as well as year over year. Sales fell over 12% from the second quarter to almost $18 billion, and fell 12.7% from the third quarter of 2010.

Jeremy Alexander, president of Beacon Research, which compiled data for IRI, was unperturbed by the drop in sales. “Despite record-low interest rates, year-to-date fixed annuity sales have held up quite well,” he said in a statement, citing continued interest in guaranteed lifetime income as the reason for relative strength in indexed and income annuities.

Weatherford agreed that guarantees are a major selling point for many investors.

“There are good products in the marketplace,” she said. “Volatility is a major concern,” so products with benefits that protect against downside or protect premiums are popular.

“Boomers moving closer to retirement are looking to build in guaranteed income in their portfolios. Risk-averse investors and the aging of the population have moved advisors and investors to these products,” Weatherford said.

The data is from a preliminary report. Final data is expected to be released Thursday.

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