Annuity Sales See 8% Drop In 2012

February 22, 2013

By Robert Dixon

InsuranceNewsNet

Annuity sales declined 8 percent in 2012, according to LIMRA's fourth quarter “2012 U.S. Individual Annuities Sales” survey, which represents data from 95 percent of the market. Fourth quarter sales were also down 8 percent, suggesting the downward trend continues.

Total annuity sales were $52.6 billion in the fourth quarter. For the full year, annuity sales were $219.4 billion.

Despite those declining figures, the industry marketing group identified two bright spots and says there is reason to expect the annuities market will rebound.

Although it’s still just a tiny slice of the market, deferred income annuity (DIA) sales topped $1 billion and fixed indexed annuity sales hit a record high in 2012, LIMRA reported.

“As an emerging market, DIAs experienced significant growth in 2012,” said Joe Montminy, assistant vice president and director of LIMRA annuity research, in a release. “We see new companies entering this market and existing players launching new products, targeting younger boomers looking to create an income stream when they retire.

“LIMRA estimates that collectively consumers age 45-59 have almost $10 trillion in financial assets, so we anticipate these products will to continue to have remarkable growth.” About two-thirds of all annuities are purchased by consumers in their 50s and 60s, Montminy said in an interview with InsuranceNewsNet.

Fourth quarter DIA sales reached $390 million, nearly 150 percent higher than the $160 million achieved in the first quarter of the year. DIAs represent less than 1 percent of all annuity sales, LIMRA reported.

Variable annuity (VA) sales decreased 8 percent in the fourth quarter, to $35 billion. VA sales totaled $147.4 billion in 2012, which was 7 percent lower than in 2011.

“Unlike historical trends, VA sales did not follow equity market growth, which increased 13 percent in 2012,” noted Montminy. “VA sales performance in 2012 was clearly influenced by companies’ strategic management of their books of business – removing some products from the market, limiting additional contributions into existing contracts, and revising features and pricing on guaranteed living benefits (GLB) riders.”

The annuity products most in demand by consumers today are “those that offer lifetime income, typically a variable with a rider for guaranteed lifetime income,” according to Montminy. Variable annuities account for about two-thirds of all annuity sales, he said.

Total fixed annuity sales were $17.6 billion in the fourth quarter, falling 7 percent compared with the fourth quarter of 2011. For the year, fixed annuity sales dropped 11 percent, hitting a 12-year low of $72 billion.

In 2012, indexed annuity sales achieved a record high $33.9 billion — a 5 percent increase compared to sales in 2011. Indexed annuity sales grew by 2 percent in the fourth quarter to $8.5 billion, an increase of 2 percent over one year ago. That figure was 2 percent lower than the prior quarter.

Guaranteed lifetime withdrawal benefit (GLWB) riders for indexed annuities continue to propel sales. A record 73 percent of consumers elected a GLWB rider, when available. LIMRA estimates that 87 percent of indexed annuities sold offer GLWB.

Fixed-rate deferred annuity sales (book value- and market value-adjusted) experienced another quarter of steep declines, down 20 percent in the fourth quarter and 27 percent for the year. Annual fixed-rate deferred product sales were $25.7 billion in 2012, the lowest level since 1998.

Single-premium immediate annuities (SPIAs) grew 5 percent in the fourth quarter to $2 billion. However, SPIA sales declined 5 percent in 2012 to $7.7 billion.

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