By Cyril Tuohy
Consumer demand for protection and guaranteed income, particularly in fixed annuities, drove overall annuity sales to $59.9 billion in the second quarter. This is an increase of 9.9 percent over the year-ago period, the Insured Retirement Institute (IRI) announced.
Overall annuity sales rose 6.8 percent over the first quarter, the IRI added, citing data provided by Beacon Research and Morningstar.
“These are the highest industry-wide sales we’ve seen in three years and, on the fixed side of the market, the highest in five years,” Cathy Weatherford, IRI president and chief executive officer, said in a news release.
Sales of fixed annuities reached $24.3 billion, an increase of 41.6 percent over the year-ago period and an increase of 7.6 percent over the first quarter, the IRI said.
Variable annuity sales declined 4.6 percent to $35.6 billion in the second quarter, compared with the year-ago period. The $35.6 billion, however, represents a 6.2 percent increase compared with the first quarter, the IRI said.
“We’re enjoying a prolonged resurgence of fixed annuity sales of all types, with sales up $7.1 billion — or 42 percent — since the second quarter of 2013,” said Jeremy Alexander, president of Beacon Research.
Industry analysts have pointed to higher interest rates as one reason for the higher sales in fixed annuities.
Within the fixed annuity world, a class of annuities known as fixed index annuities was the top seller, the industry researchers reported.
Fixed index annuities hit a quarterly record of $12.9 billion in the second quarter, an increase of 14.8 percent over the year-ago period. Fixed index annuities also accounted for 53 percent of the overall second quarter annuity sales increase, the IRI said.
Fixed index annuities are designed to offer contract holders an opportunity to take advantage of higher market returns pegged to an index. While investors are limited in the amount of market gain they reap from a fixed index contract, investors are also protected from market losses.
Despite a drop in variable annuity sales, variable annuity net assets hit a record $1.93 trillion, the IRI said.
“Variable annuity sales continue to flow into living-benefit-based annuities,” said John McCarthy, product manager of annuity solutions at Morningstar. “At the same time, interest is increasing for VA products that allow investors to diversity with alternatives in a tax beneficial way.”
Eight of the top 10 variable annuity issuers posted sales increases in the second quarter, McCarthy said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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