Fixed Annuity Transactions Soar In First Half Of 2014

By Linda Koco InsuranceNewsNet

First-half annuity sales numbers from the Depository Trust & Clearing Corp. (DTCC) point to strong growth for fixed annuities but modest growth for variable annuities.

That might be expected, considering that other industry researchers have reported similar results.

But there’s a difference. The DTCC numbers are based on actual annuity transactions, not a survey of companies, Andrew Blumberg, group director-analytic reporting for DTCC, told AnnuityNews. These numbers show actual inflows (sales) in the firm’s Analytic Reporting for Annuities database. They also show outflows (money taken out during the period) and net flows (inflows minus outflows).

DTCC’s Insurance & Retirement Services (I&RS) business processes the transactions of seven types of annuities — including fixed, variable, group, indexed and immediate. This is business produced by third-party distribution (i.e., no captive or career distribution). Total annuity transactions amounted to nearly $104 billion in first half, Blumberg said.

The fixed annuity picture

As for fixed annuities, inflows soared 130 percent in the first half to $14 billion, up from $6 billion in first half last year.

Variable annuity inflows increased too, but by only 3 percent to $37 billion, up from last year’s $36 billion.

The percentage differences are even more striking when viewing net flows. On this basis, fixed annuity net flows increased by $2 billion, or 150 percent, from first half 2013 when net flows were -$3 billion, according to the I&RS report.

Meanwhile, variable annuity net flows dropped by 74 percent in the first half, to $1.4 billion from $5.4 billion in the same period last year.

The decrease on the variable side is not necessarily bad, Blumberg commented. Several variable annuity companies have publicly stated that they were trying to reduce the amount of risk they have, and some even encouraged customers to leave certain product types, he noted. This is part of a de-risking strategy that has been the topic of much discussion in recent years.

Because of that, the first-half numbers may indicate something positive or negative, he said.

“Another point to keep in mind that the I&RS numbers are in the aggregate. But on an individual basis, even though some companies were trying to reduce risk, others were trying to grow their business.”

Concerning the sharp increase in fixed annuities, Blumberg said his firm has heard anecdotally that some of the increased inflows likely occurred because buyers were looking for greater yield than they could get on products such as bank certificates of deposit. Other customers were looking for the fixed income that fixed annuities can provide, he said.

Market share

In terms of market share, DTCC provided AnnuityNews with some numbers illustrating how this has changed in recent years. The numbers come from a breakout of the seven annuity categories that I&RS uses.

In the first half of 2014, traditional fixed annuities represented 13 percent of total inflows, this data shows. That’s up from a 7.5 percent share in the same period last year and a 10 percent share the year before that. However, in 2011, the fixed annuity share was slightly higher than in 2014, coming in at a bit over 14 percent in the first half. (Numbers are rounded.)

By comparison, variable annuity market share of inflows have declined over the same years to 60 percent in 2014. By comparison, the first-half market share in 2013 was 77 percent. In 2012, it was 74 percent and in 2011, it was 70 percent.

Some other annuity categories that I&RS uses are also fixed products. However, the researchers separate these numbers from the traditional fixed annuity category due to unique product features. If those other categories are combined with the fixed annuity share, the total fixed annuity share for first half inflows this year would be nearly 40 percent, up from 30 percent in 2011.

One of those other fixed categories is indexed annuities. The first-half share of processed transactions for these products rose to 9 percent in 2014 from 3 percent last year, 2 percent in 2012, and 1.5 percent in 2011. Another category, the fixed immediate annuity, saw a smaller but not as dramatic climb — to 3.5 percent share in 2014 from 3 percent in 2013, 2 percent in 2012, and 1 percent in 2011.

The growth may be reflecting increased sales of indexed and immediate annuities in third-party distribution. But it may also be reflecting that more firms are using DTCC services for processing various types of annuity transactions in addition to variable annuities, which today represent around 60 percent of transactions (down from about 70 percent in 2011.)

Top 10

Fixed annuities made their presence felt in another area as well in the first half. This occurred on the list of top 10 products.

That list includes two fixed annuity products — the Allianz 360 Fixed Annuity (an indexed annuity) and the NYL Secure Term MVA Fixed Annuity II (a fixed annuity). At year end 2013, only one of those products was in the top 10 list (the NYL Secure Term policy), and there were no fixed annuity products in the top ten in first half 2013, Blumberg said.

Measured on a net flow basis, the Allianz 360 product was the top-ranked fixed annuity in first-half 2014, followed by the NYL Secure Term.

As for the top 10 insurance/holding companies for annuities overall, they accounted for more than $19 billion in positive net flows, I&RS said. This represents almost 90 percent of total positive net flows for first half 2014 — up from just over $15 billion among the top 10 in first-half 2013.

The report is based on business submitted by 120 insurance companies (including 44 holding companies) and nearly 600 distributors.

“It’s estimated that our numbers represent two-thirds of overall annuity business,” Blumberg said.

Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda may be reached at [email protected].

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].