Consumers who buy fixed annuities still seem to be expecting an increase in interest rates.[@@]
A few years ago, when interest rates seemed to be in a permanent state of decline, many purchasers of fixed annuities wanted to lock in multi-year rate guarantees.
Now that rates are rising, shorter guarantee periods are in fashion, according to a report on a quarterly fixed annuity market survey conducted by Beacon Research Publications Inc., Evanston, Ill.
The firm bases the survey report on data for 208 U.S. fixed annuity products from 47 manufacturers.
Annuities with 1-year guarantee periods accounted for 85% of sales of “book value” fixed annuities during the first quarter, up from 82% during the first quarter of 2004, Beacon says.
In the “market value adjusted” fixed annuity market, products with shorter guarantee periods accounted for 40% of sales, down from 47% in the first quarter of 2004, Beacon says.
An MVA fixed annuity pays a declared rate of interest for a specified period. When a holder takes some or all of the assets out of an MVA annuity during the annuity contract term, the issuer exposes the holder to same interest rate risk by adjusting the market value of the annuity to reflect changes in a specified interest rate benchmark.
Book value fixed annuities also pay a declared rate of interest for a specified period, but the issuer does not impose a market value adjustment if the holder takes out some or all of the assets out of the annuity before the end of the contract term.
Independent producers accounted for 84% of equity indexed annuity sales, up from 79% for the first quarter of 2004, Beacon says.