LIMRA: 2012 Annuity Sales A Mixed Bag

Indexed and deferred income annuity sales experience significant growth, but declining sales of fixed and variable annuities drag down total annuity sales.

While a number of annuity markets experienced record sales in 2012, total annuity sales dropped 8 percent, tallying $219.4 billion, according to LIMRA's fourth quarter 2012 U.S. Individual Annuities Sales survey. For the fourth quarter, total annuity sales were $52.6 billion, a decline of 8 percent from the previous year.

Indexed annuity sales hit a record high of $33.9 billion in 2012 — a 5 percent increase compared to sales in 2011. Indexed annuity sales grew slightly in the fourth quarter, reaching $8.5 billion, an increase of 2 percent over one year ago. However, this was 2 percent lower than third-quarter sales.

Guaranteed lifetime withdraw benefit (GLWB) riders for indexed annuities continue to propel sales. A record 73 percent of consumers elected a GLWB rider, when available. LIMRA estimates that 87 percent of indexed annuities sold offer GLWB.

Single premium immediate annuities (SPIAs) grew 5 percent in the fourth quarter to reach $2.0 billion. However, SPIA sales declined 5 percent in 2012 to $7.7 billion.

Deferred income annuity (DIA) sales experienced significant growth, topping $1.0 billion in 2012. Fourth-quarter DIA sales reached $390 million, which is almost 150 percent higher than sales in the first quarter ($160 million).

“As an emerging market, DIAs have experienced significant growth in 2012,” said Joe Montminy, assistant vice president and director of LIMRA annuity research. “We see new companies entering this market and existing players launching new products, targeting younger boomers looking to create an income stream when they retire. LIMRA estimates that collectively consumers age 45 to 59 have almost $10 trillion in financial assets, so we anticipate these products will to continue to have remarkable growth.”

However, DIAs are still are very small part of the overall market, representing less than 1 percent of fourth quarter total annuity sales.

Fixed and variable annuity sales decreased. VA sales dropped 8 percent in the fourth quarter, to reach $35 billion. VA sales totaled $147.4 billion in 2012, which was 7 percent lower than 2011. And fixed annuity sales were $17.6 billion in the fourth quarter, falling 7 percent compared with the fourth quarter of 2011. For the year, fixed annuity sales dropped 11 percent, hitting a 12-year low of $7 billion.

“Unlike historical trends, VA sales did not follow equity market growth, which increased 13 percent in 2012,” Montminy said. “VA sales performance in 2012 was clearly influenced by companies’ strategic management of their books of business – removing some products from the market, limiting additional contributions into existing contracts, and revising features/pricing on GLB riders.”

Fixed-rate deferred annuity sales (book value and market value adjusted) also experienced declines, down 20 percent in the fourth quarter and 27 percent for the year. Annual fixed-rate deferred product sales were $25.7 billion in 2012, the lowest level since 1998.

Book value sales declined 21 percent in the fourth quarter to $4.9 billion; market-value adjusted (MVA) sales were $1 billion, down 17 percent. For the year, book value and MVA declined 29 percent and 13 percent respectively.