Beacon Research: US Sales of Fixed Annuities Fall 3.5% in Third Quarter
January 2, 2015 by Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com
WASHINGTON – Third-quarter 2014 total sales of fixed annuities in the United States dropped to $21.68 billion, down about 3.5% from the same period a year ago while the indexed variety made up 53.8% of all sales in the period, according to Beacon Research.
Separately, Limra’s Secure Retirement Institute said total sales of fixed annuities fell to $22.7 billion, down 5% from last-year’s third quarter.
Sales of all types of fixed annuities fell from the previous quarter, according to Beacon. But the indexed, as well as immediate type, remained “well above their levels” for the same period in 2013.
In a statement, Jeremy Alexander, president of Beacon Research, noted the overall positive increase in the market “despite historically low rates and a prolonged bull market in stocks.”
Over the past few years, amid persistent low interest rates in the United States, the life insurance industry has had a tougher time earning a profit on many of its traditional insurance products, including fixed annuities.
By company, Allianz Life Insurance Company of North America, a unit of Germany’s Allianz SE, again captured first place, with third-quarter sales of $3.09 billion, according to Beacon’s data. New York Life again came in at No. 2 with sales of $1.67 billion.
Advancing to third place from fifth in the second quarter was American Equity Investment Life, part of American Equity Investment Life Holding Co., with sales of $1.07 billion.
Dropping to fourth place from third was Security Benefit Life Insurance, whose parent is Guggenheim, a private equity firm, with sales of $1.01 billion. Dropping to fifth place from fourth was Forethought Life, whose parent is Bermuda-based Global Atlantic Financial Group, with third-quarter sales of $954 million, according to Beacon.
Allianz Life, American Equity and Security Benefit primarily sold indexed annuities in the quarter.
With indexed, the insurer invests most of the customer’s principal in bonds to ensure the policy will generate a small annual return but uses a small portion of the premium to buy options in a stock market index, usually the S&P 500. Options that are exercised can result in additional interest credited to a policy, potentially more than an investor might achieve through other fixed-income investments.
According to Wink Inc., sales of indexed annuities in the third quarter rose to $11.49 billion, a 14.3% increase from a year ago.
Year-to-date sales of fixed annuities jumped 21% to reach $71.8 billion, Limra said. Year-to-date fixed annuity results are positive in all product types, according to Alexander. These include market-value adjusted, up 48%; indexed, up 33% and immediate, up 30%. Sales were up 26% year to date versus 2013, “the highest result since 2009,” Alexander said.
Sales of deferred income annuities rose 21% to $670 million in the third quarter, Limra said.
An emerging product that represents a tiny slice of the overall market, a deferred-income annuity occupies a middle ground between fixed-deferred and immediate. If the payouts begin within 13 months of purchase, it’s an immediate and if the payouts begin more than 13 months after purchase, it’s a deferred income annuity, according to Beacon.
“Barely a blip in sales a short time ago,” sales of deferred income annuities have since grown to $2.2 billion last year and “are on pace to post double-digit growth in 2014,” said Cathy Weatherford, president and chief executive officer of IRI, in a statement. IRI partners with Beacon on fixed annuity data and with Morningstar on variable annuity data.
Allianz Life Insurance Company of North America currently has a Best’s Financial Strength Rating of A (Excellent).
