Fixed Annuity Sales Surge Amid Market Turmoil
Sales of fixed annuities, once the bread and butter of the annuity industry, were eclipsed by variable annuities in 1993. Now fixed annuity sales are making a strong comeback. (See Figure 1.)
Following are some thoughts on why and how this is happening.
Back in the 1990s, the booming stock market and generally declining interest rates caused many industry players to shift their focus from fixed to VA products. What ensued were several years of VA product development and distribution channel expansion. Companies rushed to market with the latest features, compensation schemes, and cost structures.
As a result, VA sales kept growing while fixed annuity sales remained relatively flat
Furthermore, fixed annuity product development remained fairly quiet, as many of the previous major fixed writers all but ignored their fixed product lineups. In that era, the only real growth area within fixed annuities was the equity indexed annuity.
In 1998, fixed annuity sales came to $32 billion, according to LIMRA International figures. That was their lowest level since 1987.
But in 1999, changes started to occur. Interest rates rose and the yield curve grew steeper. These trends increased the attractiveness of fixed annuities, especially those with longer interest guarantees, and sales jumped to $41.7 billion.
In 2000, fixed annuity sales jumped even higher, to $53 billiona 27% increase over 1999 and a new record for the industry. This brought fixed annuity market share two points higher, to 28%.
While VA sales have slowed this year, fixed annuity sales have kept up their record pace by posting an increase of 22% in the first two quarters, over the same period last year, reaching $32.5 billion.
Amidst all this growth, it turns out that the fastest growing fixed annuity segment, last year and this, is single premium immediate annuities. SPIA sales grew by 38% last year to $3.3 billion and by 28% for the first half of 2001.
increased 49%, giving them 46% market share. Banks are the second largest distributor of fixed products, making up 29% of 2000 fixed annuity sales. (See Figure 2.)
