Sales of annuities tumbled in the third quarter compared to a year ago, reports LIMRA. Nearly all product types saw declining sales, except for indexed annuities, which LIMRA predicts will have a record-setting year in 2012.
Overall, annuity sales fell 10 percent from the third quarter of 2011, dropping from $60.1 billion in Q3 2011 to $54.3 billion. Data from LIMRA represents 95 percent of the market with 57 companies reporting. For the first nine months of 2012, annuity sales totaled $166.1 billion, an 8 percent drop from the same period a year ago when sales hit $181.5 billion.
In a release detailing the results of the Q3 report, Joe Montminy, assistant vice president and director of LIMRA annuity research, commented that persistent low interest rates have caused annuity manufacturers to reassess their exposure to various product lines. “The sustained uncertain economic environment has many companies implementing conservative risk management strategies in an effort to prudently manage their business,” he stated.
Nowhere is that more evident than in the variable annuity (VA) world, where several VA writers have reworked their benefits or exited the line altogether. Statistically, VA sales dropped 8 percent in Q3, lowering to $36.6 billion from $39.8 billion. Year-to-date, VA sales hit $112 billion, a decline of 7 percent from the first nine months of 2011.
Much of the changes revolve around the guaranteed living benefit (GLB) rider that is proving problematic for VA providers in a low interest rate environment. Yet those features are popular with consumers: When available, VA GLB riders were elected 87 percent of the time, LIMRA reports.
Fixed annuities “bleak”
Also charting a cutback in sales were fixed annuities, which saw sales drop 13 percent to $17.7 billion in the third quarter with year-to-date sales coming in at $54.1 billion, a decline of 12 percent from the first nine months of 2011. LIMRA termed the sales of fixed annuities “bleak.”
Yet there were some bright spots. Specifically, sales of indexed annuities, due to solid performance by new companies entering the marketplace, held steady at $8.7 billion in the third quarter, same as a year earlier. However, sales of indexed annuities increased 6 percent year-over-year for a tally of $25.4 billion, up from$23.9 billion.
That jump, LIMRA reported, is primarily due to the guaranteed lifetime withdrawal benefit (GLWB) offered in indexed annuities. LIMRA estimates that 88 percent of indexed annuities sold offer a GLWB, with 71 percent of consumes electing that benefit.
DIAs: An emerging market
LIMRA noted that one segment of the annuity marketplace is on the rise. Deferred income annuities (DIAs) saw sales climb from $160 million in the first quarter to $270 million in Q3.
At $2 billion, sales of single premium immediate annuities (SPIA) plunged 9 percent from a year ago, but were up slightly from the second quarter. In the first nine months of this year, SPIA sales dropped 8 percent in comparison to the same period a year earlier, declining from $6.2 billion to $5.7 billion.