Individual annuity sales reached $131.9 billion in the first half of 2008, a 7% increase over the first half of 2007. (See Table 1.)
These sales are the result of strong fixed annuity sales, which grew 39% year-over-year to $47.6 billion. Variable annuity sales in the same period slipped 6% to $84.3 billion compared to the first half of 2007.
These and other findings from LIMRA International’s first half 2008 annuity sales data reveal a market in transition.
For several years prior to 2008, the annuity sales trend was the reverse: VA sales increased while fixed annuity sales decreased. (See Figure 1.) The VA sales increases were driven by volatile yet rising equity markets. More people nearing retirement were concerned about protecting their assets, and guaranteed living benefits (GLB) within VAs provided guarantees to address consumer anxiety.
Meanwhile, sales of traditional fixed annuities were hampered by historically low interest rates along with a flat or, at times, inverted yield curve.
However, late in 2007, the equity markets began to decline while the yield curve returned to a more normal positive shape as short term interest rates fell. The impact on the annuity market was apparent in the reversal of VA and FA growth rates in the first half of 2008.
This apparent flight to FAs has occurred before. In 2002, FA sales peaked at $103.3 billion as equity markets endured a third consecutive year of decline. Now, the first half growth rate for FA sales in 2008, if sustained through the second half, would result in 2008 FA sales again surpassing the $100 billion mark.
As for variable annuities, despite their small decline in sales, these products still represent the majority of annuity sales and the product’s GLB riders are more popular than ever. In the first half, for instance, 81% of new VA premium was in contracts in which a GLB was elected, if available.
The largest component of fixed annuity sales, book value deferred annuities, saw an impressive 78% increase in sales to $22.4 billion.
Meanwhile, market value adjusted (MVA) annuity sales had the highest percentage increase, 85%, as sales hit $6.1 billion. These products benefited from the favorable interest rate environment in the first half.