Industry sales of fixed annuities totaled $18.2 billion in the fourth quarter of 2005, the lowest quarterly sales total since the second quarter of 2001.
The second half of 2005 proved to be extremely difficult for fixed annuities, with sales down 20% over the second half of 2004.
At year-end, fixed annuity sales were down, as well, to $78.9 billion–a 10% decline from 2004. This is despite 18% growth in equity index annuity sales, which now account for 40% of all fixed deferred annuity sales. Altogether, fixed sales represented 36% of industrywide annuity sales of $216.5 billion in 2005.
In contrast, variable annuity sales increased each consecutive quarter of 2005, finishing the year up by 4%.
The 2005 findings come from fixed annuity sales figures just out from LIMRA International, Windsor, Conn.
Despite the strong overall growth of EIAs, their sales fell slightly in the second half of 2005. The overwhelming majority of EIA sales (92%) are through independent agents. However, at $1.3 billion, bank EIA sales grew to 5% of EIA sales in 2005. Career agents sell the remaining 3% of EIAs.
The EIA market has grown more challenging over the past year. Competition among EIA manufacturers clearly increased as several insurers entered the market. Regulatory scrutiny also increased. In July 2005, for example, the Securities and Exchange Commission asked major EIA carriers for sales and marketing information; in early August, the National Association of Securities Dealers issued Notice to Members 05-50, advising that it believes EIAs essentially should be treated as registered investments. Negative media attention escalated, as well.
Despite the hurdles, the EIA market increased its fixed annuity market share.
Fixed-rate annuity sales continue to struggle in the difficult interest rate environment. Book value and market value adjusted annuities dropped 24% to $40.4 billion in 2005 from $53.5 billion in 2004. With the Federal Reserve repeatedly raising short-term rates, certificates of deposit began offering interest rates that increasingly were competitive with traditional fixed annuity rates. This competition was most evident in the bank channel, where fixed annuity sales declined sharply in 2005.