The annuity business appears to be digging in and rebuilding, slowly.
Case in point: LIMRA reported that total sales for the first six months -- which were off by 4 percent from the same period last year -- were better than first quarter when year-over-year sales were off by 6 percent.
Furthermore, buyers in the first half didn’t necessarily flee the market. They bought, but selectively.
Indexed annuities jumped 13 percent from first quarter, reaching $18.3 billion, for instance. In addition, the products’ second quarter sales were up 5 percent over the same period last year, according to LIMRA.
People also bought the still-emerging deferred income annuities, which also are called longevity annuities. In the second quarter, these sales jumped by 155 percent over the same period last year, surpassing $500 million for the first time, said LIMRA. For the first six months, they were up by nearly the same percentage—151 percent—and reached nearly $1 billion.
The gains from indexed annuities and deferred income annuities were not enough to put the industry’s first-half results into positive territory.
Still, the results are “encouraging,” Joseph Montminy, LIMRA assistant vice president-annuity research, said in a statement. A key reason, he added, is that “every product line improved from the first quarter of 2013.”
Annuity professionals might be tempted to shrug off the deferred income annuity gains, since $1 billion in first-half sales is small compared to the industry total for the period of $108.2 billion (which was down from $112.3 billion in first half 2012, by the way). Also, although 150-plus percent growth is impressive, that’s measured on a small volume so, in raw dollars, the deferred income annuity carriers aren’t yet pulling in the big dough.
Besides, only eight to 10 carriers currently sell the products, so the deferred income annuity business does not dominate the market.
However, deferred income annuity sales have grown large enough to merit a separate line on LIMRA’s quarterly sales reports. Given that the products never made the LIMRA list before first quarter of this year, this change is an indication that the policies have officially arrived.
LIMRA’s recent sales data show another trend to munch on, as well. In the second quarter, fixed account deposits in variable annuities increased by 5 percent, to $8.1 billion, compared to second quarter last year. These deposits are also up by a little over 17 percent, compared to first quarter’s $6.9 billion.
Customers (and their advisors) could be using the fixed accounts as a temporary parking place from which to move money into separate accounts. Or they might be using the accounts as a bulwark against anticipated rough weather. Either way, the accounts still serve as an ultra-conservative, safe-money option for customers’ variable annuity money.
This fixed account growth in variable annuities, viewed alongside the growth in sales of indexed annuities, suggests that in the first half, customers continued to look to annuities for downside protection along with “some” upside.
The annuity players
The second quarter also saw quite a bit of repositioning among carriers on LIMRA’s top 20 lists of companies ranked by sales. The repositioning was especially noticeable on the fixed side of the business.
Consider: Seventeen carriers ranked lower or higher on LIMRA’s list of top 20 fixed carriers in second quarter compared to first. (Note: The second quarter list is cumulative, reflecting sales for the first six months, not just for second quarter.)
Some of that change represents normal jostling. For instance, eight of the carriers moved up or down by just one sales ranking — not particularly earth-shaking shifts. But only two fixed carriers held their rankings from first quarter. Meanwhile, five moved two ranks down. Two moved two ranks up. Another moved three ranks down, and still another moved four ranks up. And one carrier joined the list, while another fell off.
On the variable annuity side, the changes were less dramatic. Only 11 of the top 20 changed position in the rankings at all, for example. Of these, seven were just jostling, having moved up or down by only one rank. Two others moved up two ranks, while two more moved down two ranks. And one carrier joined the list, while another fell off.
There are a few takeaways from this. First, the substantial repositioning on the fixed annuity side of the business reflects the effect of the very prolonged, very low interest rate environment on sales of certain products. For example, fixed-rate deferred and book value fixed annuities — which were crediting rates at or near their guaranteed floors — declined by 15 percent and 19 percent, respectively, in second quarter compared to the same period last year. On a first-half basis, the decline was 20 percent and 22 percent, respectively.
But in several cases, carriers actually increased their production over first quarter — particularly in indexed annuities and deferred income annuities. So there was selective jockeying for position in the fixed business, despite interest rate conditions.
What is to explain the relative stability on the variable side? Sheer volume could account for some of it; the top 20 variable annuity carriers sold $68.2 billion in the second half, more than twice the sales of the top 20 fixed players ($25.3 billion). Changes tend to happen more slowly at bigger firms. In addition, several carriers made clear they would continue to focus on managing growth more tightly than in years past.
Yen for guarantees
Despite all the changes, the sales had a notable constant. This was continued sales of guarantees.
In indexed annuities, election rates for the guaranteed lifetime withdrawal benefit riders reached an all-time high of 76 percent in second quarter, according to LIMRA. In variable annuities, the election rates for guaranteed living benefit riders came to 82 percent.
This happened even though the stock market was rising — a market condition often thought to make guarantees relatively less attractive to buyers.
A few variable annuity carriers have come out with annuity products that do not have these riders, so it will be interesting to watch how the products will fare in the months ahead.
The message so far this year is that consumers are seeking growth guarantees, and will pay for that combination.
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