Fixed Annuity Sales Up 50%; Market Share At 44%

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While variable annuities are beginning to recover from recent poor equity market conditions–their sales fell just 2% in the first quarter–fixed annuities continued their rapid growth, according to new figures from LIMRA International, Windsor, Conn.

In terms of sales, FAs posted a 50% gain over first quarter 2001 to reach $22.1 billion.

In what is yet another sales record for the line, FAs also saw their market share grow to over 44%, a level not seen for nearly seven years.

If the remainder of 2002 is like the first quarter, FA and VA sales could end the year nearly neck-and-neck. Because of the increasing market share for FAs, the growth of this line was enough to keep total annuity sales growing by 16%, reaching $49.7 billion for the quarter.

Most of the FA gains are in deferred annuity products. But fixed immediate annuities grew, too–at a healthy 16%. (However structured settlement annuity sales fell 29%, after their strong 2001.)

All distribution channels contributed to the FA sales growth. However, sales by banks and stockbrokers grew the fastest, gaining 81% and 116%, respectively.

Historically, independent agents have been the biggest sellers of fixed products (see chart). But in the first quarter of 2002, they had the slowest growth, 26%.

Meanwhile, banks, whose FA market share has grown steadily since 1998, may now be the leading FA distributor. One explanation for this is that FA interest rates have been competing very favorably with rates of many bank CDs. This is partly because insurers tend to invest in longer-term instruments for these products than do banks. Also, the 11 reductions to the Federal Funds Rate made last year significantly steepened the yield curve.

Another significant shift in annuity sales: The average FA deposit in the first quarter–$40,500–surpassed the average for VAs–$37,600–for the same quarter.

Eric T. Sondergeld, ASA, CFA, MAAA, is corporate vice president and director of the Retirement Research Center at LIMRA International, Windsor, Conn. His e-mail is esondergeld@limra.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, July 8, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.