How long will customers be willing to put money into fixed annuities rather than variable annuities or securities?
The question arises amid subtle but noteworthy changes in market measures.
For instance, VA sales are already beginning to rise a bit, as compared to first quarter 2009, according to most annuity tracking services.
Meanwhile, growth in sales of fixed annuities slipped a little in the first half–this after a stunning year of quarterly records in 2008.
And of course, the Dow is currently around 10,000, well above its March low of just over 6,500, though nowhere near the high two years ago of 14,164. The Street keeps sending messages that investors are holding back, but somebody must be bidding up those shares of stock.
Data from the Bureau of Economic Analysis suggests money is definitely in motion. In May 2009, personal savings as a percentage of disposable personal income had reached 6.2%, according to BEA. That sounds promising, considering that it was at zero or just above throughout 2006 and 2007. But the bounce appears to have been short-lived. By June 2009, personal savings dropped to 4.6%. In July, it dropped again, to 4%, and in August, to 3%. So, personal savings just might be losing its luster.
The BEA figures track with trends the insurance industry has seen following every recession since the 1980s, when the modern form of variable annuities first took root. Annuity buyers just don’t stay on the fixed side of the fence once the stock market rebounds. When the skies look clear, they pull money from safe instruments and do something else with that money (either big spending or investing in securities, including VAs).
VA sales always rise after recession, and FA sales fall.
Will the pattern hold this time around? Annuity professionals are certainly studying this. If so, how can they prepare now?
Well, it’s possible that consumers could go back to buying securities, including VAs, in record numbers in the coming months. It could be they will “diss” FAs and ignore safe-money features and guarantees.