Variable Annuity Sales Slide as Income Annuities Reach Record

For the full year 2012, variable annuity sales totaled $145 billion, down 6.5% from $155.5 billion in 2011, and up 5.1% from $138.3 billion in 2010.

“Weakness in net cash flow during the fourth quarter was largely attributable to significant outflows from group contracts as an aging baby boomer work force rolls out of qualified retirement plans,” Frank O’Connor, product manager with Morningstar Annuity Research Center, told IRI.

Meanwhile, O’Connor added that the drop in sales year over year appears driven more by capacity constraints and carrier exits than by reduction in demand for the products, as evidenced by strong sales reported from companies offering lifetime income guarantees.

Within the fixed annuity market, income annuity sales increased slightly for the quarter, adding to the record run for the product class. According to Beacon Research, income annuity sales have now increased in each of the last four quarters, reaching $2.38 billion during the fourth quarter—a new quarterly record. This is a 0.3% increase from third-quarter sales of $2.37 billion and a 7.2% increase from $2.22 billion in the fourth quarter of 2011. Income annuity sales for the year reached nearly $9.2 billion, also a record. This is an 8.5% increase from just under $8.5 billion during 2011.

“Income annuity sales have increased for three consecutive years,” Beacon Research President Jeremy Alexander told ICI. “These products had record-high sales in 2012, and this growth was driven by DIAs. Indexed annuity sales also hit a record high in 2012, though results declined a bit from third to fourth quarter. Beacon expects that demand for retirement income will help both income and indexed annuities set new sales records in 2013.”