Why Are Life And Annuity Sales Going In Opposite Directions?
Statistics from LIMRA International, Windsor, Conn., show that, in the first half of 2003, life and annuity sales went in opposite directions where fixed and variable products are concerned.
The question is, why?
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In the life insurance arena, fixed product sales were up for the six-month period. For instance, universal life annualized premium rose 26% and whole life climbed 9%, says LIMRA. But annualized premiums for variable products were down–by 38% for variable universal life and 50% for variable life. (See Table I.)
Meanwhile, in the annuity sector, the fixed/variable trend went the other way. That is, total fixed annuity sales fell 10% for the half compared to the same year-earlier period, while variable annuity sales were up 12%, says LIMRA. Specifically, total fixed deferred sales dropped to $46.8 billion from $51.9 billion, while total variable sales rose to $64 billion from $57.1 billion. (See Table II).
(Note: Fixed immediate annuity sales did rise in the period, but LIMRA staff believes this may reflect a unique large-ticket sales program, not a major uptick in retirement funding purchases.)
Overall, U.S. individual life sales for the half were down 4% in annualized premiums and down 6% in number of policies sold. But total annuity volume was up 2%, according to the LIMRA reports.
With the stock market now into a several-month rebound, the VA sales upswing is expected. But why havent VUL and VL sales also shot up?
Historically, there has been a lag in the market, particularly in VUL sales, once the stock market starts rebounding from a downturn, says Elaine Tumicki, corporate vice president, products research for LIMRA. She tracks life insurance sales.
Part of the reason is that variable life policies are not issued immediately, she says, explaining they must first go through underwriting. By contrast, variable annuities have no underwriting and can be issued immediately.
In market recoveries, the insurance component in variable life definitely slows down sales growth compared to variable annuities, agrees Eric Sondergeld, corporate vice president, retirement research for LIMRA. He tracks annuity sales. “The insurance benefit is the primary reason people buy variable life in the first place,” he explains. “They dont buy the policies just to buy stock.