The headlines are filled with stories about how the annuity business is suffering multiple economic pressures. But is this the true state of the annuity business today?
That depends on where and how deeply a person looks.
Third quarter industrywide results were downers for sure. On an overall basis, total annuity sales fell 10 percent, to $54.3 billion, from third quarter last year, according to LIMRA. On a product type basis, variable annuity sales fell 8 percent to $36.6 billion, and total fixed annuities fell 13 percent.
But at a more granular level, there were a few uppers. For instance, fixed indexed annuity sales reached $8.7 billion, the same as the previous quarter, the Windsor, Conn., researcher says.
In fact, indexed sales actually inched up by a hair — 0.04 percent -- from second quarter, says another researcher, AnnuitySpecs.com. They were also up 0.24 percent from the same quarter last year, the Pleasant Hill, Iowa, firm says.
This is not to say that all indexed annuity companies held the line; a number of major players were off significantly while some of the newer and smaller players were up. Still, compared to results from the other product lines, the industrywide indexed results are noteworthy.
In addition, the emerging market of deferred immediate annuities sold $270 million in the third quarter, up from $210 million in the second quarter and $160 million in first quarter, reports LIMRA. This is a tiny market — only six active players right now — but the point is, it’s on the move — and up.
Of course, those two points of growth—the indexed annuities and the deferred income annuities — were not enough to offset the downdrafts. Hard times have undeniably hit the industry in general.
What else is in the wind?
Annuity professionals in the field and home office might not want to hang their heads in shame, however. Something else is in the wind that should help provide an offset, or at least a less-than-gloomy a perspective on those sagging industry numbers.
That “something else” is, the industrywide downturn was expected, and a number of carriers intentionally put strategies into effect that would make it happen.
That last point may seem contrary to all rationality but it is not.
As industry professionals already know, many carriers have been voicing concern throughout the year about the deleterious impact on their businesses of the prolonged low interest rate environment and the continuing market volatility. In September, when the Federal Reserve announced its intention to keep the federal funds rate at zero to a quarter percent at least until mid-2015, that concern shifted into high gear, especially in view of the nation’s continuing uncertainty over taxation issues, new regulations, and international economic unrest.
Those combined pressures spurred a number of carriers to stop or curtail writing certain types of annuities, especially contracts with guarantees designed for higher interest/less volatile market conditions. (Morningstar reports that variable annuity carriers alone filed for 106 product changes in third quarter—well above the 40 changes recorded in third quarter last year.)
The carriers knew their cutbacks and product revisions would put the brakes on sales or at least slow them down to a sedate 40 miles an hour. But they made the changes anyhow, often explaining they could not do otherwise without hampering their ability to support profitably the business already on the books. Now, they are looking at the third quarter numbers with a collective sigh of relief, reasoning they did what had to be done.