Significant changes swept through individual annuity sales in 2009.
Variable annuity sales declined considerably early in the year before slowly recovering, while fixed annuity sales enjoyed record growth early in the year but fell sharply through the rest of 2009.
For the first time, both VA and FA sales dropped in the same year.
In 2009, total individual annuity sales fell 11% to $234.9 billion (see Table 1). VA sales of $127 billion were down 18% compared to 2008. The last time annual VA sales were recorded at this level was in 2003, at the end of the last financial crisis. It is the first time annual VA sales declined for two consecutive years.
FA sales were down slightly from the prior year at $107.9 billion. However, these annual changes do not tell the whole story.
VA sales in first quarter 2009 were at a six-year low and then slowly recovered throughout the rest of the year. By fourth quarter 2009, VA sales had inched up to $32.6 billion, 3% higher than third quarter. This slow improvement in VA sales was in contrast to the S&P 500 index, which rose 23% in 2009.
Typically, VA sales move in tandem with the equities market, but in 2009 that did not happen. Driving this change was the decline in 1035 exchanges that had helped fuel new sales in recent years.
Many VA companies that offered guaranteed living benefit (GLB) riders adjusted their annuity product lines and pricing of GLB riders in the first three quarters of 2009. The de-risking adjustments to VA products and riders appear to be complete, and the fact that VA sales were up slightly in fourth quarter could bode well for VAs in 2010 as investors continue to show interest in buying GLB riders in their VA contracts.
The GLB election rate, when available at purchase, remained strong at 84%, during fourth quarter, though slightly less than the 89% experienced in the prior quarter.
By comparison, FA sales hit a record high of $35.7 billion in first quarter 2009, the sales were spurred by offerings of attractive interest rates and safety from the plunging market. But FA sales fell sharply throughout the rest of the year.