Fixed index annuities (FIAs) took a whopping 53.8 percent share of the third quarter fixed annuity market, as measured by sales. That is according to Beacon Research numbers appearing in third quarter annuity sales reports issued by the Insured Retirement Institute (IRI).
Seeing that percentage is a reminder that market share analysis can provide perspective on the types of products that are moving competitively in a given market at a given time.
This particular quarter had the highest FIA market share of any of the previous third quarters, going back to 2010. Only third quarter 2012 came close; in that year, FIAs took a 52.7 percent share of market.
Compared to sales
The fact that third quarter 2014’s FIA market share is 1 percent higher than in the third quarter two years previous takes on meaning when compared to actual sales.
In third quarter 2014, FIA sales of nearly $11.7 billion had fallen by 9.6 percent from the previous quarter’s $12.9 billion. However, the sales were were up by nearly 34.5 percent over third quarter 2012, when Beacon statistics indicate that FIAs sold $8.7 billion.
So the big market share in 2014 packs a much bigger wallop, in terms of sales, than the nearly same share that occurred two years ago.
About the third quarter decline in FIA sales from second quarter: Seen by itself, this 9.6 percent decline might make it seem as if FIAs have lost some steam. After all, that decline is not miniscule. But…look again at the market share.
By market share, FIAs hit a five-year record (53.8 percent, as noted) in third quarter. This share was up slightly from the second quarter (53.1 percent — not shown on chart) when FIA sales were more than $1 billion higher. But it was also up noticeably from the third quarter 2013 FIA share (44.8 percent), which occurred during a period when FIA sales (nearly $10.1 billion) were $1.6 billion lower than 2014’s third quarter ($11.7 billion).
This suggests that, comparatively speaking, FIAs are holding their own despite the overall downward sales reported for the entire fixed annuity marketplace between second and third quarter of this year. (All fixed annuity sales totaled $21.7 billion for the quarter, according to Beacon. This was a 10.7 percent decrease from $24.3 billion in second quarter and a 3.5 percent decline from $22.5 billion in the third quarter last year.)
The fact that FIA third quarter share gained a hair compared to second quarter suggests that the sales were not sliding into some kind of worm hole, nor were they registering a product defection among sellers. Rather, they appear to have been experiencing enough vigor to gain share despite the overall decline in all fixed sales.
The upside potential/downside protection aspect to the FIA product line has been a compelling message all through the post-recession period. The market share numbers, along with the sales numbers, help support that notion, at least on an industry-wide basis.
This point is underscored by the 9 point jump in FIA market share compared to one year ago (to 53.8 percent from 44.8 percent). The sales this year were higher than last year, and the share was higher, so FIAs were galloping ahead by this measure.
What it can reveal
Market share can reveal not only competitiveness and/or incentivized sales but also perceived value to consumers along with successful marketing and product positioning with appropriate customers.
In certain stages of the economic cycle, it also can be taken as a potential measure of profitability or, as in the recent past, a warning sign of over-exposure to a particular line of business when capacity is in question.
For those reasons, carriers and distributors will be studying annuity market share closely, from all angles, as they set their directions for the coming year.
The accompanying table shows the industrywide market share of not only FIAs, but also of book value annuities, income annuities and market value annuities (MVAs). The figures were drawn from Beacon statistics appearing in third quarter reports issued to the press by IRI over the last five years.
A simple comparison of share values between third quarter 2014 and third quarter 2010 shows that two fixed product types had noticeable increases in share over the period. One product type was FIAs, which rose by 22.3 percent. The other was income annuities, which rose even higher, by 23.28 percent. This is an impressive development, although on overall sales volume ($3.11 billion in third quarter 2014) that is considerably smaller than that for FIAs, based on Beacon’s numbers.
MVA market share rose too, by nearly 11 percent from 2010 to 2014. However, these products had a bumpy road, so acceleration was more difficult. As for book value annuities, their share fell by 38.1 percent over the five-year period, but that was not surprising considering the continuing low-interest environment.
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