Who Will Win The Next Annuity Iditarod?

By Linda Koco
AnnuityNews

Annuity carriers with first quarter sales drops don’t need to feel like the last musher on the Iditarod Trail. They have plenty of company.

In first quarter 2013, a majority of the top 20 fixed annuity carriers reported sales declines compared to a year ago, and nearly half of the of the top 20 variable annuity carriers reported the same, according to numbers just out from LIMRA.

The decliners include some of the industry’s biggest sales leaders. For instance, three of the top five variable annuity sales leaders, and four of the top five fixed annuity carriers, reported lower first quarter sales in 2013 than in the same period a year ago.

This could be useful information for annuity producers who have seen their own production plummet and who are now wondering where they stand compared to the industry. Are they on track or not? It also may be useful to home office staffers who are assessing marketing strategy for the remainder of the year.  Do we mush ahead or not?

High level view

Here is the high level view of the early year decline.  At nearly $52 billion, total annuity sales for the quarter were off 6 percent from first quarter 2012, according to LIMRA’s estimated individual sales results. Variable annuity sales fell 4 percent, and fixed annuity sales tumbled 11 percent, with only deferred income annuities showing growth (147 percent).

The declines continue the down-slope trend that began more than a year ago. By first quarter 2012, total annuity sales had dropped 8 percent from the same year-earlier period, according to LIMRA figures.

Industry experts are not surprised at the downturn. Many expected (even wanted) the declines because 1) they were concerned that continued growth during the prolonged low interest rate environment would put too much pressure on reserves and 2) a number of carriers had announced plans to continue curtailing sales as part of their risk management (derisking) strategy. 

It’s not clear yet where the industry will go next. A closer look at the LIMRA sales estimates may help shed some light on this. First the decreases:

In all, eight of the 17 carriers that were on the Top 20 list of individual variable annuity sales leaders for first quarter 2013 reported sales declines from first quarter 2012. Similarly, in first quarter 2012, LIMRA’s Top 20 list showed 10 carriers reporting variable annuity sales declines from the same year-earlier period.

(NOTE: In each year, a few carriers show up on the LIMRA Top 20 lists that did not appear on the previous year’s list, so these carriers’ results are omitted from the comparisons noted here.)

On the individual fixed annuity side of the business, a similar pattern emerged. Fully 13 carriers on LIMRA’s Top 20 list for first quarter 2013 reported sales declines from the same year-earlier period.  As for first quarter 2012, the Top 20 list then showed seven carriers reporting fixed annuity sales decreases.

These figures are especially noteworthy since, as noted above, three of the top five variable annuity carriers, and four of the top five fixed annuity carriers, reported first quarter sales declines in 2013 compared to 2012.

By comparison, in stronger sales periods, most Top 20 carriers tend to report sales increases.  For instance, in first quarter 2011, when LIMRA reported that total annuity sales had increased by 16 percent, fully 15 of the variable annuity carriers in LIMRA’s Top 20 list that quarter reported sales increases from the year before, while just four reported decreases. On the fixed annuity side, 10 carriers reported increases that year while seven reported decreases.

All of this leads to the obvious: Sales decreases are definitely in the air, and they have been for at least two years. Ardent annuity advocates may find that a lot to stomach, even advocates who generally support carrier actions to ensure long-term solvency amidst uncertain economic and regulatory conditions. 

Other numbers

But the LIMRA data also have other numbers, ones that invite careful scrutiny—and opportunity searchers. These other numbers have to do with sales increases that LIMRA’s study also picked up. 

In first quarter 2013, nine variable annuity carriers reported sales increases on a year-over-year basis, and in 2012, eight did the same.  On the fixed side, in 2013, four fixed annuity carriers reported first quarter sales increases over the same year-earlier period, and in 2012, seven did the same.

What is significant is, many of those increases came from mid-to-smaller volume carriers, not just the ones in the top five.

This was especially pronounced for variable annuity sales in first quarter 2013, when seven of the nine carriers reporting sales increases were not among the top five sales leaders. The trend was also apparent in fixed annuity sales in first quarter 2012, when six of the seven carriers reporting sales increases were not among the top five.

It is always possible that some of those now-growing carriers could reach their capacity limits and have to rein in sales as did previous carriers. But as of recent times, they have been in a growth mode and that is what annuity producers want to see.  If the trend continues, this may contribute to a reformatting of the annuity marketplace, with new carriers in the lead and new followers. The sales statistics don’t say that, but the numbers suggest the possibility.

Another piece of data in the LIMRA numbers has to do with carriers that now rank in the Top 20 but that were not on that list in the same quarter a year previous.

·         In first quarter 2013, three carriers showed up on the variable annuity Top 20 list that were not there in the same prior-year quarter.

·         In first quarter 2012, six carriers appeared on the fixed annuity Top 20 list that were not there in the same prior-year quarter.

These are examples of a trend that annuity experts have been predicting—namely, as certain annuity carriers scale back sales or make market exits, other carriers will fill the void.

Some of the newest Top 20 players may not stay on that list. Some may not have enough capacity to grow far, wide and fast. And some may never break into the top five. But some of them just might surprise. Perhaps one of them will have a team that wins the Annuity Iditarod some year.

Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing 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].