After suffering declines in the first half of 2015, annuity sales reversed course in the third quarter, edging up 2.9 percent compared to the year-ago period.
The source of this good news: The Insured Retirement Institute, which unveiled its third-quarter 2015 sales results for the U.S. annuity industry. Based on data from Beacon Research and Morningstar, Inc., the industrywide data aggregates sales across products, including fixed, fixed indexed and variable annuities.
Third quarter sales totaled $58.5 billion, up slightly from $58.4 billion recorded in the second quarter of 2015. The Q3 total also exceeds the $56.9 billion posted in Q3 2014.
Fixed annuity sales reached their highest mark in more than six years, totaling $26.5 billion in the third quarter. The Q3 result is up 15.9 percent rise from $22.8 billion recorded in the prior quarter; and a $21.7 billion gain over Q3 of last year.
Fixed indexed annuities accounted (on a dollar basis) for the biggest sales gains. Premium revenue from FIAs reached $14.4 billion in Q3, a 14.5 percent increase over the $12.6 billion recorded in Q2; and a 23.3 percent rise from the $11.7 billion posted in Q3 2014. The Q3 2015 result, a record, also bests the previous high for the product by $1.5 billion.
In contrast to the gains in the fixed space, variable annuity sales dipped in the third quarter to $32 billion from $35.6 billion in the Q2, a 10 percent decline. The 3Q sales figure is also down from the $35.2 billion posted in Q3 2014, a 9 percent decline.
“The attractiveness of fixed annuity products during the third quarter is not surprising given certain macroeconomic factors, including a spike in volatility,” IRI President and CEO Cathy Weatherford said. “Consumers continue to demand lifetime income, but some may have opted for principal protection over growth potential in the face of volatility.
“With the markets recovering during the fourth quarter, we anticipate that Q4 sales figures will show a leveling out in this regard. Similarly we expect the rise in markets will help return VA net assets to an upward trajectory,” she added.
For the entire fixed annuity market, there were approximately $15.3 billion in qualified sales and $11.2 billion in non-qualified sales during the third quarter of 2015.
“Due to downward pressure in the equity markets, there has been a flight to safety to fixed annuities,” Beacon Research President Jeremy Alexander said. “In Q3 2015 the fixed indexed annuity market showed record sales due to increased penetration of the bank and broker-dealer channels.”
See the tables beginning on the next page for additional highlights from the IRI survey.
As this chart indicates, sales of fixed indexed annuities in the third quarter far exceeded sales from other types of fixed products. Revenue from book value annuities, the second highest total among fixed products, was not much more than a third of sales from fixed indexed annuities.
Given its superior sales volume, fixed indexed annuities accounted (not surprisingly) for more than half of all fixed products in the third quarter. Again, book value annuities logged in a distant second by market share.
As this table shows, variable annuity net assets dipped in the third quarter. Buffeting the VA space, reports IRI, were “modest investment returns and tepid interest rates, both external factors that created headwinds in the third quarter.”
While variable annuities enjoyed more than $32 billion in sales in the third quarter — still the highest among all annuity categories — net sales were in the negative. That was due to surrenders, withdrawals, inter- and intra-company exchanges, plus benefit payments.
As shown here, equity garnered the most significant portion of variable annuity assets by asset class in the third quarter. Absent greater volatility in stock market valuations — or else a shift to bear market territory — that’s likely to remain the case.