The Department of the Treasury and the Internal Revenue Service released new guidance that is “designed to expand the use of income annuities in 401(k) plans.”
By Linda Koco
Let it not be said that a relatively unknown annuity product cannot make major headway in sales. The object of the lesson here is the deferred income annuity (DIA). In terms of year-over-year sales growth, this product line jumped 113 percent in 2013, according to the year-end annuity sales estimate report just released by LIMRA Secure Retirement Institute (LIMRA SRI).
This happened in a year when total annuity sales experienced overall growth, including the largest quarterly percentage increase in 11 years, the researcher said.
By premium volume, the DIA is still a diminutive player, producing just $2.2 billion in sales for the year, compared to the previous year’s $1.1 billion. In an industry where total annual sales run into triple-digit billions, that’s chump change.
But considering that DIA products did not even get a separate line on the researcher’s year-end 2012 sales chart, and considering that these fixed-annuities-that-delay-payouts-for-many-years did not have much of an industry life before 2012, the sales news for these products spell one word: Popular.
The sales news for 2013 was remarkable for some other products as well.
Fixed index annuities
Take fixed index annuity (FIA) products, for example. FIAs closed the year with estimated sales of nearly $40 billion, according to LIMRA SRI. That’s nearly half (47 percent) of the $85 billion total for all fixed annuities (which also rose in 2013, increasing by 17 percent over total fixed annuity sales in 2012).
The 2013 FIA sales were also up by a healthy 16 percent from 2012’s year-end FIA total of $33.9 billion, according to the report.
In the fourth quarter alone, FIAs brought in $11.9 billion — a big 40 percent increase over fourth quarter 2012 and yet another quarterly record for this index-linked fixed product line.
Improved interest rate conditions helped make the FIA product offerings more attractive, LIMRA SRI assistant vice president Joe Montminy said in a statement. So did continued product innovation, he said.
But those weren’t the only factors. Organic growth in the banking and independent broker/dealer channels contributed to FIA sales too, he said, pointing out that this growth was “additive and not at the expense of the independent channel.”
In fact, the independent channel didn’t do too shabbily either. The channel’s fourth quarter sales increased by 24 percent year over year, earning it a 71 percent market share, Montminy said.
On a five-year basis, the LIMRA SRI figures show that FIA year-end total sales increased every single year. The 2013 sales were up 31 percent from 2009.
Variable annuity sales
Variable annuity (VA) sales had a surprising year too — or at least, it will likely be surprising to those who had expected the sales to tank dramatically in the wake of deliberate efforts by a number of carriers to rein in or control sales in various ways.
VA sales did drop in 2013 compared to the year before — to $145.3 billion from $147.4 billion in 2012, according to the LIMRA SRI figures —but the decline was by just 1 percent and the fourth quarter saw a 4 percent increase over the same year-earlier quarter.
Viewed against 10-year results, the 2013 variable annuity sales were off by 21 percent compared to the 10-year high of $184 billion in 2007. However, the 2013 performance was 13 percent above the 10-year low of $128 billion in 2009.
Onlookers might view the 2013 variable annuity decline as worrisome given that these annuities are securities products and that this decline happened in a year when the leading securities indices soared. The Dow, S&P 500, and NASDAQ all leaped ahead of 2012 by roughly 26 percent, 29 percent and 38 percent, respectively.
But it’s unlikely that carriers will be worried. For many, the relatively flat 2013 sales (compared to 2012) will be seen as a positive sign, i.e., that their companies are writing the amount of variable annuity business that they can comfortably support as they recover from the economic stressors that followed the recession of 2008-2009.
As the analysts at LIMRA SRI put it, “Companies continue to carefully manage their VA business.”
The analysts also have posited that “VA sales are no longer tracking with the equities market.” That certainly appears to be the case for 2013 and even 2012. Whether that will continue, once most of the carriers have solidified their new portfolios and strategies remains to be seen.
About those re-shaped portfolios, the analysts noted that “More emphasis on accumulation VAs appears to be an emerging trend. In 2013, more companies introduced these types of products into their portfolios as they shift their focus to tax-deferred products with alternative investment options and indexed-linked VAs.”
Worth noting is that VA sales fluctuated from quarter to quarter in 2013, but they stayed within a range of $35 billion to $38 billion. This suggests that overall production was free from the seismic change predicted by some VA antagonists. The changes that did occur appear to reflect normal quarterly jockeying, as may be seen by comparing the 2013 quarterly results with 2012’s quarterly results:
Total annuity sales
A final note about the annuity year that was: Total annuity sales - variable and fixed combined — reached $230.1 billion in 2013, according to the LIMRA SRI sales estimates. That’s down 13 percent from the 10-year high of $265 billion in 2008, but up 6 percent from the 10-year low of $217 billion in 2005. It is also up 5 percent from the $219 billion annuity total in 2012.
Overall, the annuity sales year of 2013 could be described as quite sunny with a trace of haze over part of the sky.
Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda may be reached at firstname.lastname@example.org.
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