In the first quarter, indexed annuities topped the charts in sales growth among all annuity lines as compared to first quarter 2011.
The sales volume still did not surpass that of more traditional annuity products, such as variable annuities and fixed deferred annuities, but in terms of sales growth, the products were definitely the leader of the pack, and by a substantial margin.
What’s behind it? The answer is in the sales results themselves.
The sales results
First quarter indexed annuity sales reached $8.1 billion -- up 14 percent compared to first quarter 2011, according to estimates from LIMRA. AnnuitySpecs.com is reporting similar results — first quarter sales of $8 billion in 2012, up by more than 13 percent from first quarter last year.
The differences in results reported by the two firms are not significant, given that the firms have slightly different lists of participating companies as well as different research parameters and definitions.
But the double-digit growth that both firms identified is significant, especially when viewed against the performance of other annuity product lines. For example, total variable annuity sales fell by 7 percent in first quarter 2012 compared to first quarter last year, according to LIMRA. That was on first quarter 2012 sales of $36.8 billion.
In addition, total fixed annuity sales fell by 10 percent on first quarter sales of $18 billion, LIMRA says. That was despite the two-digit jump in sales of indexed annuities, which are included in the fixed total.
The total fixed annuity plunge was a result of sales declines in most fixed annuity categories that LIMRA tracks other than indexed annuities. These other categories include fixed rate deferred annuities (down 28 percent on sales of $7.1 billion compared to first quarter last year), book value annuities (down 32 percent on sales of $5.8 billion), and fixed deferred annuities (down 11 percent on sales of $15.2 billion). Fixed immediate annuities were the only products to flatline, coming in at 0 percent gain on sales of $1.8 billion.
AnnuitySpecs points out that first quarter indexed annuity sales did lag the previous quarter by 3 percent. But Sheryl J. Moore sees the product’s 13 percent increase over first quarter sales last year as the more compelling figure. Moore is president and CEO of Moore Market Intelligence, which owns AnnuitySpecs.com.
“No other lifetime income product is as strategically positioned to thrive in this low-interest rate environment. In fact, the indexed annuity is well-suited for any market environment,” Moore said in releasing her firm’s first quarter numbers.
LIMRA portrays indexed annuity sales as “the driving force in the fixed market” for the first quarter, and points out that for the third consecutive quarter, the products “outperformed traditional fixed annuities, capturing 45 percent of the fixed annuity market.”
Why did it happen?
The question is what accounts for this surprising turn of sales results? How did indexed annuities become a bright light in an otherwise dismal quarter? One answer has to do with guaranteed living benefits. The features were a big part of fixed indexed annuity sales in the first quarter.
For instance, according to AnnuitySpecs, nearly 56 percent of total indexed annuity sales in first quarter 2012 had the guaranteed lifetime withdrawal benefit (a type of guaranteed living benefit) rider elected. LIMRA’s survey found an even higher election rate. It says 66 percent of indexed annuity buyers elected a guaranteed lifetime withdrawal benefit rider when available at time of sale.
But as popular as they are, the guaranteed withdrawal riders and other guaranteed living benefit riders are likely not the only reason for indexed annuities’ charm in first quarter 2011.