Fixed Annuities Were ‘The’ Sales Story In 3Q
November 27, 2013 by Linda Koco
What a difference a quarter makes in annuity sales results. In third quarter, total fixed sales were up 31 percent over third quarter last year, according to LIMRA’s new estimated results.
On a year-to-date basis, the year-over-year increase was not as dramatic but sales were still up. Total fixed sales increased by 6 percent compared to the first nine months of last year, according to LIMRA.
By comparison, just three months earlier, LIMRA estimates showed that second quarter total fixed sales had dropped by 6 percent compared to second quarter 2012, and that year-to-date fixed sales were off by 6 percent.
Reversal of fortunes
The reversal of fortunes for the fixed annuity industry may have been helped along by what was happening on the variable side of the business.
According to LIMRA’s estimates, total variable sales in third quarter were off by 2 percent compared to third quarter last year, and year-to-date variable sales were also off by 2 percent compared to the first nine months of 2012.
That raises the possibility that some annuity-minded clients may have decided to go with a fixed annuity rather than to put money into a variable annuity. It’s hard to say for sure, but the flow of annuity dollars suggest that fixed –thinking did have pull this past quarter.
In terms of dollars, variable annuity sales remain well ahead of fixed, as has been the case for many years. For instance, in third quarter, total variable sales came to $35.9 billion while total fixed annuity sales came to $23.5 billion, or roughly two-thirds of the variable annuity total.
A similar pattern appears in year-to-date sales. In the first nine months, total variable sales were $109.6 billion for the period. Meanwhile, total fixed sales came to $58 billion in the same nine-month period, a little more than half the variable annuity total.
Still, fixed was definitely “the” story for third quarter. Here are a few pieces of that story, based on year-over-year third quarter estimates reported by LIMRA:
· Market value adjusted annuities were up 110 percent for the quarter.
· Deferred income annuity sales — still considered a relative newbie in the annuity world — were up 106 percent.
· Fixed-rate deferred annuities were up 66 percent.
· Book value annuities were up 56 percent.
· Fixed deferred annuities were up 35 percent.
· Indexed annuities were up 15 percent.
Assessing the numbers
The percentages don’t tell the whole story, since the dollars involved in the various fixed product lines vary quite a bit.
For example, although deferred income annuity sales were up by an impressive 106 percent, that increase was on sales of only $555 million. Likewise, market value adjusted annuities were up by a wow-sy 110 percent, but that was on sales of just $2.1 billion.
By comparison, indexed annuities were up by a smaller figure of 15 percent but produced a quarterly sales record of $10 billion and a $1 billion increase from second quarter.
The indexed annuity performance is illuminating from a number of perspectives. For one thing, most of the increase came from accumulation-type products, according to LIMRA.
In addition, “we are seeing broader acceptance of indexed annuities across the different distribution channels,” Joseph Montminy said in a statement. He is assistant vice president for annuity research at LIMRA Secure Retirement Institute.
One example is bank sales of indexed annuities. These grew to a 15 percent market share in third quarter, up from a 9 percent share one year ago, Montminy said.
That is a significant shift in share. The indexed products may have looked particularly appealing to bank customers who are increasingly discouraged about the low rates available in bank certificates of deposit. It could be the bank customers were drawn to the annuities’ potential upside as well as the downside guarantees, the main selling features of the products since their debut nearly two decades ago.
LIMRA detected another shift in indexed distribution, too, and this one is a bit surprising. This is that market share for independent broker-dealer distribution of indexed annuities grew to 5 percent in third quarter, up from 3 percent in third quarter last year.
This is surprising because the broker-dealer community has generally objected to sales of indexed annuities, especially to indexed sales being made outside the firm and therefore outside the purview of broker-dealer supervision. Some broker-dealers also had quibbles about the products’ surrender charges, complexity, fees, etc.
Although the new 5 percent market share in this channel is relatively modest, it is noteworthy because it may be an indicator of changing attitudes. For instance, the growth in share might be a signal that at least some parts of the independent broker-dealer channel have worked out the “issues” they initially had with indexed annuities.
The persistent efforts of some indexed annuity distributors to partner up with independent broker-dealers may have been a contributing factor in that. In the past few years, a number of such efforts have been under way, with the annuity distributors offering to take indexed sales and management off the broker-dealers’ hands (for a consideration) but to run the book in accordance with the firms’ standards and requirements.
Another factor could be the change in policy designs that indexed annuities have undergone in recent years, making the products more suited to broker-dealer distribution.
Tilt toward fixed
Still another factor could be the definite third quarter tilt towards things “fixed.” Consider the trend in variable annuity sales. According to LIMRA, fixed accounts in variable annuities increased by 11 percent, to $7.9 billion, in third quarter 2013, in comparison to the same quarter last year. In second quarter, fixed accounts in variable annuities increased by 5 percent over second quarter 2012.
Those fixed account increases occurred even as separate accounts in variable annuities fell in both third and second quarters 2013 — by 6 percent and 3 percent, respectively — compared to the same periods last year.
The combined effect seems to suggest that the annuity-buying public has become more interested in fixed investments than some onlookers may have realized.
Perhaps some variable annuity advisors had clients with such strong leanings toward fixed that the advisor decided to suggest purchasing an indexed product instead. That is a distinct possibility, given the increased market share for indexed annuity sales in the independent broker-dealer channel. (Note: Advisors who are dual-licensed can present both types of annuities.)
Whether third quarter’s pronounced orientation toward fixed product will stick around for a while remains to be seen. After all, in today’s market, trends seen in one quarter may or may not carry over to the next.
In the first quarter of this year, for example, total fixed annuity sales were down — by 11 percent — compared to the same year earlier period, according to LIMRA numbers. In the same quarter, fixed accounts in variable annuities were also down — by 10 percent — compared to the same year earlier period. That was just two quarters ago. But in third quarter, the fixed business headed up.
When fourth quarter results come out, it will be easier to see what was trend and what was aberration. For now, fixed annuities have the sales headlines.
Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda may be reached at linda.koco@innfeedback.com.
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