Fixed annuity sales are hot. While industry sales for 2008 aren’t available yet, it’s a good bet that overall fixed annuity sales were up significantly from last year.
Multi-year guarantee annuities were the clear sales winner as customers flocked to contracts with stronger longer-term guarantees.
While these contracts will remain strong sellers throughout 2009, the smart annuity sellers will recognize that, as with everything else, other annuity contracts may also provide tremendous potential for customers based on their risk profile and overall general economic conditions.
FA sales grew strong as consumers went looking for rate alternatives to historically low savings account and bank certificate of deposit rates of 2008 and now early 2009. Add to this the fact that on February 6, 2009, the Federal Deposit Insurance Corporation closed FirstBank Financial Services in Georgia, making it the 7th bank to fail in 2009, according to the Associated Press.
Customers desperately want safety and security and have now become very distrustful of regular banking institutions. Furthermore, with the yield curve steepening over the past few months, 4- to 6-year multi-year guarantee annuities have sold briskly, enabling customers to enjoy 4.5%-5.25% rate guarantees compared to the 2.8% or so being paid on 5-year CDs.
As yields for corporate over Treasury bonds widen and insurance companies feel a bit more comfortable with issuer risk, annuity rates will continue to be strong, providing a bond alternative to customers’ investment portfolios. Customers are now recognizing that annuities are a “safe money” product and are very much a bond-like investment class within their portfolio.
It’s a good bet that today’s low interest rates will not increase much soon. After all, the jobless rate climbed to 7.6% in early February and consumer credit outstanding is falling at a seasonally adjusted rate of 3.1%. While the threat of deflationary pressures, present only a few months ago, appears to have subsided, there are no real inflationary pressures. Meanwhile, automakers are reporting dismal sales, even though the price of oil has fallen 70%, and home sales are also dismal, even though mortgage rates are low and home prices are falling.
Until consumers feel the risk of losing their job has subsided or they find new employment if currently unemployed, consumer spending will not increase (also keeping interest rates low). In this environment, multi-year fixed annuities may be the best option for a portion of a customer’s investment portfolio.