VAs Drag Down Annuity Market
November 19, 2014 by Arthur D. Postal
WASHINGTON – Total U.S. annuity sales fell 2 percent in the third quarter of 2014, compared to a year ago, reflecting declining consumer interest in fixed annuities due to lower interest rates, according to the LIMRA Secure Retirement Institute (SRI).
However, the overall picture for annuities sales this year was a strong positive, with overall sales rising and fixed annuity sales higher for the entire year. The strongest sector for the year appears to be fixed index annuities (FIAs).
The weak spot was in the variable annuity (VA) category.
VA sales fell 1 percent in the third quarter, totaling $35.5 billion. For the year, VA sales reached $105.9 billion, a 3 percent drop from 2013.
LIMRA SRI researchers noted many of the top VA sellers are focusing on diversification of their VA guaranteed living benefit (GLB) business. In the second quarter, a few of the top companies entered the market with accumulation focused product without a GLB rider.
Election rates for VA GLB riders, when available, were 76 percent in the third quarter of 2014, LIMRA officials said.
The LIMRA report said FIA sales grew 15 percent in the third quarter, to $11.7 billion, and 31 percent for the year to date, totaling $36 billion.
LIMRA also said that FIA GLBs’ election rate was 69 percent (when available) in the third quarter 2014.
The LIMRA numbers were based on reporting by 94 percent of the individual market.
For the year so far, fixed annuity sales reached $71.8 billion, a 21 percent increase from 2013. But, for the third quarter, total fixed annuity sales were $22.7 billion, down 5 percent versus prior year.
At the same time, the overall picture was also positive, with LIMRA SRI reporting that overall U.S. annuity sales increased 6 percent for the first nine months of 2014, compared to the same period. For the third quarter, fixed annuity sales totaled $58.2 billion, and for the first nine months, $177.7 billion, LIMRA Secure Retirement Institute said.
“Throughout the year, fixed annuities have been the primary driver of overall annuity growth,” said Todd Giesing, SRI senior analyst. He cited the 50 basis-point drop in interest rates since the start of the year as reason sale of fixed products declined in the third quarter.
Sales of fixed-rate deferred annuities (Book Value and MVA) fell 32 percent in the third quarter, compared with prior year, LIMRA said. Fixed-rate deferred annuities reached $22.4 billion in the first nine months, an 8 percent increase compared to last year.
Deferred income annuity (DIA) sales reached $670 million in the third quarter, 21 percent higher than prior year. In the first nine months of 2014, DIAs jumped 35 percent, totaling $2 billion, LIMRA said. The top three writers continue to drive most of the DIA sales, accounting for 75 percent of third quarter DIA sales.
Single premium immediate annuity sales were up 10 percent in the third quarter to reach $2.3 billion. YTD, SPIA sales jumped 30 percent to reach $7.4 billion. LIMRA SRI predicts SPIA sales will exceed current annual sales records.