Individual annuity sales reached a record $236.2 billion in 2006, a 9% increase over 2005.
These record sales are the result of highest-ever variable annuity sales in 2006, which climbed to $160.6 billion, up 17% from the prior year. Fixed annuity sales had a more challenging year, however, with sales dropping 5% to $75.6 billion.
VA sales benefited from improved market conditions along with continued enhancements to guaranteed living benefit riders, which provide policyholders a means of participating in market gains while protecting investments from downside losses. GLB riders have become essential to the long-term strategies of nearly all major retail VA companies.
In the second half of 2006, roughly $50 billion of the $57.8 billion in new contract VA premium occurred in contracts in which a GLB was available, according to estimates by LIMRA International. A GLB was elected 77% of the time when available.
The most popular type of GLB is the lifetime-based guaranteed minimum withdrawal benefit (GMWBL), according to LIMRA data. Last year, 39% of eligible VA sales elected this benefit.
Another popular benefit is the guaranteed minimum income benefit (GMIB) which was elected by 36% of eligible sales. The standard (non lifetime-based) GMWB and the guaranteed minimum accumulation benefit (GMAB) constituted a small portion of eligible sales.
Fixed annuity sales are split by the following product types for deferred products: book value deferred, market value adjusted (MVA), and indexed annuities, along with fixed immediate annuity products and structured settlements sales.
Indexed annuity sales fell 10% year over year, dropping to $24.5 billion. They now account for 38% of all fixed deferred annuity sales and 10% of all annuity sales (see Figure 1). Contributing factors in the sales decline included the insurance industry’s response to regulatory issues surrounding indexed annuities–such as lowering commissions and making other policy modifications–and also lingering negative publicity.
Fixed-rate annuity (book value and MVA products) sales continue to struggle in this difficult interest rate environment. Interest rates offered on bank certificates of deposit were competitive compared with those offered by traditional fixed-rate annuities. These products dropped 4% from $41.1 in 2005 to $39.4 billion in 2006.
Fixed payout annuity sales include single-premium immediate annuity sales of $5.9 billion (up 11% for 2006) and structured settlement sales of $5.8 billion (down 2% from 2005). During the year, some leading companies intensified their product development and marketing efforts for SPIAs.