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December 29, 2002 at 07:00 PM
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Fixed annuity sales set yet another single-quarter record in the third quarter of 2002 with $30 billion in overall fixed annuity sales.
The third quarter marked the seventh straight quarterly increase in fixed annuity sales and the sixth straight quarter in which a new quarterly record was established for fixed annuity sales.
The continuing string of increasing sales is all the more remarkable considering the current interest rate environment. The average annuity interest rate as reported in LIMRA Internationals U.S. Individual Annuities survey hovered near 5% during each month this year before dropping each month in the third quarter to an all-time low of 4.49% in September.
The squeeze between contractually guaranteed minimum interest rates and market rates was definitely being felt as many companies halted sales of short-term interest guarantee periods, and some sought a lower minimum guaranteed interest rate below the 3% typically seen in fixed annuity contracts.
The strong appeal of a fixed return has impacted variable annuity sales, as well. Forty-five percent of new VA premium was initially placed in fixed subaccounts during the third quarter.
It is not unprecedented for fixed subaccount new premium to equal or even surpass new premium directly placed into variable separate accounts. However, 11 years ago was the last time that the portion of new VA premium put in fixed subaccounts reached 45%. While VAs continue to outsell fixed annuities, the total dollars of new money going directly into variable separate accounts in the third quarter was the lowest amount since the fourth quarter of 1996.
