Overall annuity sales continued their downward arc in the first quarter, according to several recently released statistical reports. But there were some rays of light peeking through the clouds.
Industry-wide, annuity sales in the first quarter totaled about $49.6 billion, down 2 percent from $50.6 billion in the final quarter of last year and a 6.6 percent drop from Q1 2012 when sales amounted to $53.1 billion, reports the Insured Retirement Institute (IRI).
In the variable annuity (VA) space, there was a measure of good news. Although sales slumped 4.4 percent year over year (dropping from $36.2 billion in Q1 2012 to $34.6 billion), that number was a slight 0.6 percent higher than Q4 2012’s total of $34.4 billion, reports IRI, citing statistics from Morningstar Inc.
Further stats from Morningstar indicate additional improvement in the VA sector. Net sales returned to positive territory, reaching $900 million, after posting a negative $599 million in the fourth quarter of last year.
VA total net assets hit an all-time high of nearly $1.72 trillion in Q1, a 4.6 percent climb from the $1.64 trillion recorded in the fourth quarter of last year and a 6.5 percent jump from $1.61 trillion in Q1 2012. In the variable annuity market, there were $22.77 billion in qualified sales and $11.86 billion in nonqualified sales during the first quarter.
Cathy Weatherford, president and CEO of IRI, said the quarter-over-quarter gain in VA sales and the positive growth in net sales were encouraging signs for the sector. “It’s worth noting, however, that net flows have been largely affected by outflows from group contracts as a result of an aging workforce rolling out of qualified plans,” Weatherford said in a statement. “This reflects the demographic reality that there is a population spike entering their retirement years.”
Frank O’Connor, product manager, Morningstar Annuity Research Center, noted in a statement the change in how VA assets are dispersed, with more money now invested in allocation funds. “Five years ago, allocation funds represented just 12 percent of total VA assets but have risen steadily to more than 30 percent today,” O’Connor said. He added that this movement is driven by the “common requirement” to invest in such funds when electing an income guarantee.
Fixed annuity sales also slide
Low interest rates continue to pound down sales of fixed annuities. In Q1, fixed annuity sales reached $15 billion, down 11.7 percent from a year ago ($16.9 billion) and 7.7 percent from the fourth quarter of 2012 ($16.2 billion), according to Beacon Research.