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Retirement Planning > Retirement Investing > Annuity Investing

Annuity Assets Grew 1.2% In 1Q

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Total deferred annuity assets grew 1.2% during the first quarter of 2007, reaching nearly $1.97 trillion, reports LIMRA International, Windsor, Conn.

The figures come from a new LIMRA analysis that tracks industry deferred annuity net flows for variable annuities, fixed-rate annuities and index annuities each quarter.

The survey shows estimated inflows and outflows (full surrenders and others) for all 3 product types, points out Eric Sondergeld, corporate vice president and director of retirement research (see Table 1). It also includes quarterly earnings for the 3.

The combined effect shows how the annuity industry is growing or contracting, and in which product line, Sondergeld says.

The data comes from annuity companies that elected to contribute date to the LIMRA survey. Individual companies can benchmark their own asset growth/contraction against the industry numbers, Sondergeld points out.

In the 1st quarter survey, deferred index annuity assets showed the largest percentage increase: up 5.9% to $109.1 billion, from December 31, 2006 to March 31, 2007, the survey shows.

Meanwhile, deferred variable annuity assets grew by 2% to $1.4 trillion in the same period, but deferred fixed annuity assets contracted by 2.3%, to $450.5 billion.

According to the survey, the FA contraction resulted from FA outflows (4.7%) exceeding inflows (1.7%), Sondergeld says. Three percent of the outflows were attributed to full surrenders. FA earnings were up 1% for the quarter, but not enough to offset the net outflow.

Since inflows and full surrenders are within a company’s control–by spurring sales on the inflow side and influencing the direction of surrenders–companies can use the results in deciding how to maximize assets, he says.

Is the industry showing a healthy level of asset growth? Sondergeld thinks the numbers are reflective of what happens in the life cycle of products.

“For instance, the industry’s newest product class–index annuities–is showing the fastest growth rate at nearly 6% for the quarter, with inflows accounting for most of that,” he points out.

Such rapid growth is what typically happens with new products, he continues.

As products mature, he says, their rate of growth slows down but the actual sales numbers may be very large, due to the magnitude of that segment of the industry.

Hence, “VAs, which have been around for several decades, are showing asset growth of just 2%, but also relatively modest surrenders (2%), and substantial assets ($1.4 trillion) and sales ($42.1 billion),” he says. In fact, VAs accounted for most of the growth in total deferred annuity assets. Worth noting is that VA investment earnings grew 1.7%, compared to 1% for FAs and 0.8% for IAs.

Traditional FAs, the oldest type of annuity, are showing a bit of a decline, Sondergeld says. He thinks this has more to do with strong interest rate competition from bank certificates of deposit and other fixed investments than with age of the FA industry. Competition from VAs is another factor, he adds, explaining that “many VAs reinvented themselves in the last few years,” while many traditional FAs did not.

He contends that insurance companies should “dust it [their FA line] off and look at it,” to see what can be done to reinvent the products for today’s market.

LIMRA has also released first quarter 2007 individual annuity sales results for the United States. This shows that total individual annuity sales were up 2%, to $57.9 billion, compared to the first quarter of 2006. (See Table 2.)

The sales leader was the VA. Its 1st quarter sales rose 8% to $42.1 billion, compared to the same period in 2006, says LIMRA, noting this is just shy of the single-quarter VA sales record of $42.5 billion, set in the 2nd quarter of 2006.

Total FA sales–including deferred FAs, deferred IAs, immediate annuities and structured settlements–fell 12%, to $15.8 billion. Sales of traditional deferred FAs accounted for the much of this, with sales off 20%, to $7.2 billion. Deferred IA sales were also off–by 11%, to $5.7 billion. Fixed immediate annuity sales rose slightly, to $1.5 billion (from $1.4 billion in the same year earlier period). Structured settlements remained flat at $1.4 billion, LIMRA says.


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