Fixed annuity sales in 2006 fell 3.3% from the previous year, reaching an estimated $70.9 billion, according to Beacon Research, an Evanston, Ill., fixed annuity research firm.
The results are based on sales at 48 insurance companies and track the major types of FAs: book value, indexed, market value adjusted, and immediate (see chart).
The 4th quarter of 2006 saw a 15.7% drop in FA sales–to an estimated $16.5 billion–from the previous quarter, according to the report. But, when compared to the same period the year before, FA sales fell by only 1.1%.
With one exception, sales of all product types declined during 2006, says Jeremy Alexander, president of Beacon. The one exception was sales of MVA annuities, which grew by a startling 71.3%.
Roughly 99% of the MVA sales involved products offering multi-year interest rate guarantees, he says.
Why did those products become such strong sellers in 2006? Most of the growth occurred during the 2nd and 3rd quarters, when interest rates were rising to 5% and above, says Alexander. “That is the kind of marketplace that draws people towards fixed products. It brings the money in.”
Also, he says, there was rising concern that interest rates would decline on the MVAs’ 5- and 7-year guaranteed products in the 4th quarter. As a result, he says, people moved quickly to put their money in those products before the decline occurred.
As things turned out, added Alexander, the interest rate concerns proved to be correct.
“The 5- and 7-year rates did start dropping in the 4th quarter, with the result that 4th quarter MVA sales actually dropped by 21.7% from the prior quarter.”