Variable Annuity Sales Highest Since Q3 2007

Industry-wide sales still on track to exceed $150 billion in 2011

Net variable annuity sales in the third quarter were $8.8 billion, the highest level since the same quarter of 2007 when sales totaled $8.9 billion, the Insured Retirement Institute announced Tuesday. Variable annuity sales were $39 billion, down 2% from last quarter and up 14% from 2010. Year to date, variable annuity sales are over $118 billion, an 18% increase over 2010.

"The record level of new sales of variable annuities clearly demonstrates that the products are competitive in the marketplace and that they are attracting new investors at an expanded pace," IRI President and CEO Cathy Weatherford, said in a statement.

Industry-wide sales fell 4% from the second quarter, but increased 6% over third-quarter 2010 sales to over $58 billion.

"The overall strength and growth of the industry is not only underscored by these encouraging numbers, but also that sales are expected to exceed $150 billion for the year. As year-to-date fixed sales remain strong, and on par with 2010 levels, the industry is poised to round out the year on a very high note," Weatherford (left), added.

Year-to-date sales of fixed annuities fell less than 1% to $58.3 billion. Decreases were more dramatic for other periods, however. From the second quarter, fixed sales fell 7% to nearly $19 billion and year-over-year sales fell 7.3%.

An earlier IRI report, released Nov. 22, found that variable annuity benefit activity “slowed significantly” in the third quarter with just 40 material changes from carriers, compared with 162 in the second quarter.

Weatherford noted that this is not unusual as the second quarter is typically the most active for filings before leading into one of the slowest periods of the year. However, in the same quarter last year, carriers filed 106 new changes.

"What has not slowed is the continued move toward increasingly generous benefits, a trend that developed in the months that followed the economic downturn and remains a focus of product development activity today,” she said.

The new filings, according to the report, focus heavily on new share classes and lifetime GMWB benefits, which account for about 64% of new sales flows.

“Carriers continue to experiment with new benefit design,” Kevin Loffredi, vice president of insurance solutions for Morningstar and author of the report, wrote. “Benefit structures continue to be parsed to allow for risk control and segmentation of the target investor base. Also continuing is the trend toward releasing share classes for the fee-based market. Step ups also took a leap forward this quarter with higher fixed percentages.”

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