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Fixed Annuity Sales Dip in Q3: IRI

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After rising to the highest levels in five years, fixed annuity sales cooled off in the third quarter of 2014, based on the Insured Retirement Institute’s third-quarter 2014 sales results for the U.S. annuity industry released this week.

Fixed annuity sales dropped 10.7% quarter-over-quarter and 3.5% year-over-year to $21.7 billion in Q3, down from $24.3 billion in the previous quarter and $22.5 billion in the third quarter of 2013, according to IRI, which looks at data reported by Beacon Research and Morningstar Inc.

The data shows that industrywide annuity sales in the quarter reached $56.9 billion, a 5% decline from $59.9 billion in the previous quarter and a 1% decline from $57.5 billion in the third quarter of 2013.

“Ebbs and flows are normal in the course of an established and mature industry, and the numbers in the third quarter reflect that,” said Cathy Weatherford, IRI President and CEO, in a statement. “At the same time, mature does not equate to stagnant.”

Despite the fixed annuity sales’ cool numbers in Q3, Beacon Research President Jeremy Alexander reported that 2014 year-to-date fixed annuity sales were up 26% versus 2013, “the highest result since 2009.”

“We are very pleased with the overall positive increase we are seeing in the fixed annuity market despite historically low rates and a prolonged bull market in stocks,” said Alexander in a statement. He added, “Year-to-date results are positive in all fixed annuity product types. This includes fixed income products, which are up 30%; fixed indexed products, which are up 33%; and market value adjusted products, which are up a staggering 48%.”

Meanwhile, variable annuity total sales remained stable throughout Q3 2014.

According to Morningstar data, variable annuity total sales were flat in Q3 at $35.2 billion, a 1.1% decrease from $35.6 billion in Q2 2014 but a 0.4% increase from nearly $35.1 billion year over year.

“Variable annuity (VA) sales have remained stable over the past eight quarters, and the third quarter was no different,” said John McCarthy, product manager of annuity solutions for Morningstar, in a statement. “Net assets remained steady and new sales flows were solid during the quarter, but net flows dipped into negative territory because of redemption events, including withdrawals under living benefits, death benefit payments and group rollouts.” Variable annuity net assets, according to Morningstar, closed the third quarter at $1.9 trillion – a 1.6% decline from $1.93 trillion at the close of Q2 2014 and a 6.5% increase year over year from nearly $1.79 trillion at the close of the third quarter of 2013. Meanwhile, as McCarthy said, variable annuity net sales were negative for the quarter, estimated to be -$2.5 billion because of redemption activity.

Within the variable annuity market, IRI reported results that showed $22.7 billion in qualified sales and $12.5 billion in non-qualified sales.

“Carriers still appear to be strategically managing their VA volumes and focusing on developing non-benefit, “investment only” offerings to help investors take advantage of the tax-deferred benefits of variable annuities,” McCarthy said.

While sales of all types of fixed annuities decreased quarter-over-quarter, Beacon Research data shows sales of indexed annuities and income annuities remained well above their levels for the same period in 2013.

Indexed annuity sales reached nearly $11.7 billion during Q3 2014, down 9.6% from $12.9 billion in the previous quarter but up 16% from sales of nearly $10.1 billion in Q3 2013. And income annuity sales reached $3.11 billion during Q3 2014, an 8.3% drop from $3.39 billion in the previous quarter, but a 10.5 % increase from sales of nearly $2.82 billion in the third quarter of 2013.

It is figures like these that show the innovation present in the annuities market.

“This is a market that continues to innovate,” Weatherford said in a statement. “The emergence of deferred income annuities over the past few years is a perfect example. Barely a blip in sales a short time ago, sales have since grown to $1 billion in 2012, to $2.2 billion last year, and are on pace to post double-digit growth in 2014. We expect this type of ongoing innovation to contribute meaningfully to overall sales as time goes on.”  

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