Income Annuity Sales Set New Quarterly Record
Variable Annuity Net Sales Jump, Variable Annuity Total Net Assets Reach New Record High in Third Quarter
WASHINGTON, D.C. – The Insured Retirement Institute (IRI) today announced final third quarter 2012 sales results for the United States annuity industry, based on data reported by Morningstar, Inc. and Beacon Research. Industry-wide annuity sales for the third quarter reached nearly $52.9 billion, down 4.3 percent from $55.3 billion in the previous quarter.
Fixed annuity sales for the third quarter were buoyed by the strongest sales quarter ever for income annuities and steady indexed annuity sales, according to Beacon Research. Income annuity sales increased to nearly $2.4 billion in the third quarter, up 3.8 percent from about $2.3 billion in the second quarter and up 6.7 percent year over year from $2.2 billion in the third quarter of 2011. Indexed annuity sales totaled $8.7 billion, down just 1.2 percent from $8.8 billion in the second quarter and up 0.5 percent year over year from just under $8.7 billion in the third quarter of 2011.
“The consumer demand for income annuities has grown steadily during the past two years as consumers seek to generate a guaranteed stream of retirement income,” said Cathy Weatherford, IRI President and CEO. “The renewed attention to income annuities stems in part from a report issued last year by the U.S. Government Accountability Office, concluding that annuity ownership offers predictable income that can reduce the uncertainty that comes along with managing investments and drawing down assets. I believe this quest for certainty is helping to keep industry-wide sales relatively steady, despite the current low interest rate environment.”
Third quarter variable annuity total sales dipped 4.9 percent to $36.3 billion from $38.2 billion in the second quarter of 2012, according to Morningstar. Year over year, variable annuity total sales decreased 7.2 percent from $39.1 billion in the third quarter of 2011. Despite the decline, variable annuity net sales for the quarter increased by 44.3 percent to $5.8 billion from $4 billion during the second quarter. Within the variable annuity market, there were $24.5 billion in qualified sales and $11.8 billion in non-qualified sales during the third quarter. Variable annuity total net assets reached a new all-time high of $1.62 trillion during the third quarter of 2012, up about four percent from $1.56 trillion in the second quarter.
“The significant improvement in net sales indicates the third quarter drop in gross sales may be a function of reduced exchange activity rather than a slowing of new investment,” said Frank O’Connor, product manager, Morningstar Annuity Research Center. “The lion’s share of positive cash flow is concentrated in variable annuities offering income guarantees, which reflects continued demand for these types of products among investors in or near retirement.”
Total fixed annuity sales for the third quarter were down 3.1 percent to $16.6 billion from $17.1 billion in the second quarter of 2012. Year over year, fixed annuity sales decreased 12.8 percent from $19 billion in the third quarter of 2011. For the fixed annuity market, there were nearly $8.6 billion in qualified sales and $8.0 billion in non-qualified sales during the third quarter.
“Despite, or perhaps because of low interest rates to some extent, income annuity sales are growing and indexed annuities are holding their own,” Beacon Research President Jeremy Alexander said. “Income annuity payouts look attractive relative to the conservative alternatives. That’s especially true for deferred income annuities, which provided most of the sequential increase in total income annuity sales. Indexed annuity premium bonuses and guaranteed lifetime withdrawal benefits also look pretty good in the current low rate environment.”