Annuity Sales Down But Not Out In 2Q

The second quarter annuity industry sales estimates published by LIMRA Secure Retirement Institute (LIMRA SRI) reveal that sales declined compared to one year ago. However, that does not mean annuities are losing their luster, as some annuity critics will likely predict.

First, the numbers: Total variable annuity sales for the six months were off by 3 percent compared to 2014, and total fixed annuity sales were off by 7 percent, the LIMRA SRI results show. Even the fixed annuity sales star for the past several quarters — fixed index annuities (FIAs) — saw a modest decline of 1 percent in the first half.

But there’s more to the story.

For one thing, total 2Q annuity sales were 10 percent higher than in first quarter of this year, said Todd Giesing in introducing the new numbers. A senior business analyst at LIMRA SRI, Giesing described the quarter’s sales as “strong.”

For another thing, 2Q sales totaled $60.2 billion with fixed and variable combined. Since 2010, Giesing said, “quarterly annuity sales have reached $60 billion only five times.” That’s five times out of a possible 22.

Considering the economic conditions in the post-great recession era, during which time several annuity carriers intentionally reined in sales, reaching or surpassing the $60 billion mark for any quarter in the last few years is a sign of resilience and strength. (By way of comparison, in 2010, the second quarter annuity sales total was $57 billion, according to LIMRA SRI figures.)

The industry’s two main challenges — persistently low interest rates and high stock market volatility — have moderated a bit this year, but they still are impacting growth strategy at many carriers. Interest rates are still hovering low. For instance, 10-year Treasuries closed 2Q 2015 at 2.3; that’s higher than yesterday’s close of 2.2 but down from the 2.5 close at the end of 2Q 2014. And although stocks have soared to record highs, they’ve lost some steam in recent months, creating uncertainty about direction. That the industry reached $60.2 billion in second quarter amid these conditions is an accomplishment.

Finally, the declines reported for 2Q and the first half are in comparison to last year’s sales results which were, as LIMRA SRI’s Giesing put it, “particularly strong.” That is a key consideration, since a decline from a vigorous growth period carries less worry-burden than a decline from a previous low.

A closer look

A closer look at the new results show that the period has positives with substance. For instance, the FIA total for the quarter was $12.5 billion, a figure that LIMRA SRI said is the second strongest quarter in history.

Two years ago, in 2Q 2013, FIA sales were just $9.3 billion. The sales were already heating up back then and by 2Q 2014, they hit $13 billion. In this context, this year’s 2Q FIA sales of $12.5 billion may signal that the industry took no more than a slight breather in second quarter.

Another fixed product line, market value adjusted fixed annuities (MVAs), actually saw sales rise this year, at least in 2Q, and by a heads-up 14 percent over the same period last year. However, MVA sales volume was comparatively small — $2.5 billion for the quarter — and weaker MVA sales in 1Q brought MVA sales for the first half down 8 percent.

Variable annuity sales merit a nod. Variable sales were up 11 percent from 1Q, in keeping with the tendency over the past 11 years for variable sales in 2Q to be stronger than in 1Q, Giesing noted. And although 2Q variable sales were off from a year ago, the declines are smaller than last year. For instance, in 2015, these sales fell by 1 percent in 2Q year over year and by 3 percent year to date. In 2014, the variable annuity sales declines were greater, down 5 percent and 4 percent, respectively. Whether this moderating trend will continue is the question now on the table.

Annuity carrier activity

In second quarter, carrier sales results reflected the competitiveness, or lack thereof, in both the variable and fixed annuity businesses.

Based on sales rankings, variable annuity carriers did not appear to be in highly competitive mode. Only nine carriers on LIMRA SRI’s list of top 20 individual variable annuity sellers saw their year-to-date sales ranking change in the first half as compared to the same period last year.

Seven of these companies moved up or down by just one sales rank position and two others by two positions. This reflects only moderate repositioning activity. One notable change from last year is that Forethought Annuity is now on the top 20 list for the first half, in 18th place year-to-date. Other than that, the key players look much the same as last year at the half. Even their respective sales volumes were “in the neighborhood” of where they were last year, albeit with changes up or down.

The fixed annuity business is another story. The top three carriers — Allianz Life, New York Life and AIG — held their respective positons compared to the first half last year, but many others moved around.

One big change here is that four fixed carriers that were not on LIMRA SRI’s first-half list of top 20 fixed annuity sellers one year ago are now on the list. These carriers are Forethought Annuity, Principal Financial, North American Company for Life and Health, and Nationwide. Another notable change is that two fixed carriers saw their ranks change by as many as four positions, and one carrier changed by five positions,

As a result, the top 20 fixed carrier list has changed substantially from one year ago. Much of that likely reflects continuing jockeying for sales in the FIA market as well as what Giesing called “a purposeful shift in market share among the top indexed annuity companies.”

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].