An arrow pointing down (Credit: Allison Bell/ALM)

Falling interest rates may be starting to squeeze U.S. sales of individual non-variable deferred annuities.

Sales of individual deferred fixed annuities, and individual deferred indexed annuities filed as fixed products, fell to $29 billion in the third quarter, down 12% from the total for the third quarter of 2018, according to new issuer survey data from Wink Inc.

(Related: Non-Variable Annuity Sales Still Look Good: Survey Managers)

Wink began tracking individual deferred variable annuities earlier this year. Survey participants reported making $26 billion in variable annuity sales.

Some indexed annuities are registered with the U.S. Securities and Exchange Commission as variable-rate securities. Other indexed annuities, which come with principal protection guarantees, are classified by regulators as non-variable annuities.

Sales of the non-variable indexed annuities increased 5.5% when compared with results for the third quarter of 2018, to $19 billion, according to Wink survey data.

Sales of SEC-registered indexed annuities increased 61%, to $4.7 billion.

Here’s a look at how sales of some of the types of annuities Wink tracks changed between the third quarter of 2018 and the latest quarter:

  • Traditional fixed annuities: Down 14%
  • Multi-year guaranteed annuity (MYGA) contracts: Down 13%

Interest Rates and Fixed Annuities

An “individual annuity contract” is really like a sausage casing, with the meat inside the casing being the issuers’ investments, reinsurance, derivatives, and other instruments for making money on assets and managing investment risk.

Partly because of the structure of state insurance laws and regulations, insurers tend to invest a majority of the assets supporting annuities in bonds and other debt securities.

Some of the factors that affect the issuers’ investment earnings include trends in the benchmark interest rates controlled by world governments, and the size of the gap between the interest rates countries like the United States pay and what high-rated corporate borrowers pay.

When the gap, or “spread,” between what insurers pay fixed annuity holders and what the insurers earn on their own investments narrows, insurers may respond by increasing product prices, trimming product features, or reducing or ending product sales.

Resources

A summary of the Wink annuity survey results is available here.

— Read Non-Variable Annuity Sales Continue to Climbon ThinkAdvisor.

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