Annuities Experience Largest Quarterly Percentage Increase in 11 Years
WINDSOR, Conn., Feb. 24, 2014 — Total annuity sales hit $61.9 billion in the fourth quarter of 2013 representing an increase of 17 percent — the largest quarterly percentage increase in 11 years, according to LIMRA Secure Retirement Institute.
For full year 2013, annuity sales were $230.1 billion, a 5 percent increase over 2012.
Fourth quarter sales of indexed annuities reached $11.9 billion — a new quarterly record and a jump of $1.7 billion from the prior quarter.
"There were several reasons indexed annuities has such a strong fourth quarter," said Joe Montminy, assistant vice president, LIMRA Secure Retirement Institute Annuity Research. "Improved interest rates make the product offerings more attractive and they have benefited from continued product innovation. Another reason is the organic growth in the banking and Independent B-D channels. This growth was additive and not at the expense of the independent channel, which saw a 24 percent increase in the fourth quarter and makes up 71 percent of the market."
Indexed annuity sales were up 16 percent in 2013 compared to 2012 and totaled $39.3 billion.
Fixed annuity sales were $25.6 billion in the quarter, the highest they have been since the second quarter of 2009 and up 45 percent compared to last year. Total fixed annuities sales grew 17 percent in 2013, totaling $84.8 billion.
Fixed-rate deferred annuities - Book Value and MVA- had another outstanding quarter, increasing 54 percent in the fourth quarter compared to last year. The improved interest rate environment was the main reason for this substantial increase. Fixed-rate annuity sales reached $8.5 billion in the fourth quarter. For the year, fixed-rate annuities improved 19 percent to $29.3 billion.
Variable annuity sales marked positive growth in the fourth quarter, up 4 percent to $36.3 billion. Following a trend for the past few years, VA sales are no longer tracking with the equities markets. Despite extraordinary 32 percent growth in the equities market in 2013, VA sales were down 1 percent at year-end compared with 2012 and totaled $145.3 billion.
Companies continue to carefully manage their VA business. More emphasis on accumulation VA's appears to be an emerging trend. In 2013, more companies introduced these types of products into their portfolios as they shift their focus to tax-deferred products with alternative investment options and indexed-linked VAs.
The growth in the equity markets enabled VA assets to hit a record $2 trillion by the end of 2013.
Election rates for VA GLB riders dropped to 79 percent (when available) in the fourth quarter. Focus on accumulation and tax deferment, as well as changes in GLB riders, has impacted election rates of these riders.
While GLBs can provide lifetime income, demand for pure income annuity products are at record levels — deferred income annuities and SPIAs both broke sales records this quarter.
Deferred income annuities (DIAs) reached $710 million in the fourth quarter. While DIAs are still a small piece of the total annuity market, this was 82 percent higher than Q4 2012. In 2013, DIA sales grew to $2.2 billion, more than double 2012 results (113 percent).
Single premium immediate annuity sales were up 30 percent in the fourth quarter to reach a record $2.6 billion. SPIA sales totaled $8.3 billion, which is 8 percent higher than in 2012 and another record.
"Higher interest rates are playing an important role in the increased sales of income annuity products. We anticipate that continued improvements in interest rates and changing demographics will increase demand for these income annuity products ," noted Montminy. "There are 42 million retirees in the U.S. today, which will grow to 65 million by 2025. In addition, more and more Americans are going to retire without a pension and will look to create a guaranteed income stream, which annuity products can provide."
The fourth quarter Annuities Industry Estimates can be found in the updated Fact Tank. To view variable, fixed and total annuity sales over the past 10 years, please visit Annuity Sales 2004-2013. Top twenty rankings of total, variable and fixed annuity writers will be posted in mid-March following the last company's earnings call.
LIMRA Secure Retirement Institute's fourth quarter U.S. Individual Annuities Sales Survey represents data from 95 percent of the market.
About LIMRA Secure Retirement Institute
LIMRA Secure Retirement Institute provides comprehensive, unbiased research and education about all aspects within the retirement industry to improve retirement readiness and promote retirement security. For more information, please visit www.secureretirementinstitute.com.