Fixed Annuity Sales In 2nd Quarter Match Variable Annuity Sales

Fixed annuity sales reached $29.5 billion in the 2nd quarter of this year, setting a new record for sales in a single quarter for the fifth consecutive quarter.

The continuing explosion in FA sales enabled the products to match variable annuity sales in the 2nd quarter. Its a notable turnabout, since FAs last outsold VAs in a single quarter seven years ago, and it has been a full decade since FA sales surpassed VA sales for a full year.

The increase in marketshare for FAs–from 45% in the 1st quarter to 50% in the 2nd quarter–occurred while VAs posted their first sales increase in five quarters (Note: The increase in VA sales is based on a comparison of sales in the current quarter to sales in the same quarter of the previous year.)

The 4% increase in VA sales over the 2nd quarter of 2001 reflects a 24% increase in contributions to fixed subaccounts. Meanwhile, contributions into variable accounts fell by 4%.

The combined results, for FA and VA sales in the 2nd quarter, produced the highest sales quarter ever for overall annuity premiums–$59 billion.

Driving these results were the guarantees offered in todays annuities. During uncertain economic times, such guarantees make annuity products especially appealing.

Fixed deferred annuity sales increased 76% in the 1st half of 2002–when compared to the same period last year–to reach $48 billion.

Within the fixed deferred product type, market value adjusted annuities more than doubled in sales to $10 billion, equity indexed annuities rose by 72% reaching $5 billion, and book value deferred annuities increased by 69% with $33 billion in sales.

Fixed immediate annuity sales grew at a less impressive pace of 22% and reached $2.2 billion in the 1st half of 2002.

An additional $2.4 billion in premium was received through structured settlements sales. This constituted a 27% decline from the 1st six months of 2001, and the structured settlement annuity was the only fixed product type to see a decrease compared to the prior year.

Historically, independent agents have been the dominant sales channel for FAs. Over the last several years, however, banks have narrowed the gap and they even outsold independent agents in the 1st quarter of this year in FAs. However, independent agents reclaimed their fixed annuity lead in the 2nd quarter.

Combined, these two distribution channels captured more than three-quarters of FA premiums for the 1st half of the year. The next largest channel, career agents, captured just 10% of sales.

Stockbrokers were the leading sellers of VAs for much of the last decade; three years ago, they became the top sales channel for all annuities combined, both fixed and variable. In the years prior to that, the career insurance agent channel was the leading annuity sales channel.

Now, due to their strong FA sales, independent agents have become the leading annuity channel overall–for the first time in history!

Until 10 years ago, FAs were the dominant product. In 1992, these products posted their 2nd consecutive annual decline in sales and just prior to that sales were relatively flat. VAs, on the other hand, had been growing steadily and surpassed FA sales for the first time in 1993.

Industry players at the time put their energy into expanding their VA distribution outlets and, as a result, adding new product features to maintain a competitive advantage and shelf space. By the late 1990s, VA market share was more than three times that of FAs.

A FA comeback was about as expected as an 8,000 (or lower) Dow.

Today, FA and VA sales are neck and neck. This time, however, FAs are coming off of a three-plus year run in sales gains. Insurers are now making sure their FA offerings are competitive. Meanwhile, some traditionally variable-only players have entered the FA market.

What remains to be seen is whether the current emphasis on FAs is simply a fad or suggestive of a trend not unlike that witnessed with VAs in the 1990s.

Eric T. Sondergeld, ASA, CFA, MAAA, is a corporate vice president and director of the Retirement Research Center at LIMRA International, Windsor, Conn. His e-mail address is esondergeld@limra.com Dan Q. Beatrice, ACS, AIAA, is a LIMRA analyst and his e-mail address is dbeatrice@limra.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 7, 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.