Fixed Annuity Sales Take A Hit In 1Q

By Cyril Tuohy

InsuranceNewsNet

Total U.S. annuity sales for the first quarter were $49.6 billion, down 2 percent from the fourth quarter in 2012, and down 6.6 percent from the first quarter in 2012 as fixed annuities took the biggest hit due to low interest rates, according to the Insured Retirement Institute (IRI).

Sales of fixed annuities for the first quarter were nearly $15 billion, down 7.7 percent from the fourth quarter in 2012, and down 11.7 percent from the first quarter of last year, the IRI reported, citing data compiled by Beacon Research and Morningstar.

“The difficult interest rate environment continued to take its toll on fixed annuity sales in the first quarter,” Beacon Research president Jeremy Alexander said in a news release. Deferred income annuities, however, in which annuitants elect to defer the income for a year or more, are a “bright spot,” he said. Sales are up 150 percent from a year ago, he also said.

Total sales of variable annuities in the first quarter were $34.6 billion, up 0.6 percent compared with the fourth quarter in 2012, but down 4.4 percent from the first quarter in 2012, the IRI also reported. Net sales of variable annuities in the first quarter reached $900 million after shrinking by nearly $600 million in the fourth quarter of 2012.

With sales of fixed annuities stagnant or shrinking, insurance companies are looking to tweak their variable annuity product portfolios by altering their product mix, pulling back on some features and changing the annuity risk profiles.

Cathy Weatherford, IRI president and chief executive officer, said the quarter-to-quarter improvement in variable annuity sales was a “positive sign.” “The swing back to positive growth in net sales is similarly a step in the right direction, albeit with room for further improvement,” she said in a statement.

As aging workers retire and roll out of qualified retirement plans, the industry is experiencing outflows from group contracts and there’s an opportunity to step in with retirement income products for baby boomers, she said.

Despite the quarter-to-quarter volatility in the sales of variable annuities, net assets held in variable annuities continued their march into record territory. Total assets hit $1.72 trillion at the end of the first quarter, up 4.6 percent from the fourth quarter of 2012, and up 6.5 percent from the year-ago quarter, the IRI also reported.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].