Second quarter total annuity sales increased for the first time since the fourth quarter of 2008, growing 11% over the first quarter of 2010 to $57.0 billion, according to LIMRA's quarterly U.S. Individual Annuities sales survey. Annuity sales show signs of recovering as all major components of annuity sales improved when compared to the first quarter (Figure 1).
Variable annuity (VA) sales jumped more than $3 billion in the second quarter of 2010 to $35.5 billion. The 10% increase in second quarter sales was the first significant increase in quarterly VA sales since the second quarter of 2007. From the first quarter of 2009 to the first quarter of 2010, VA sales were stuck in a range of $31 – $33 billion. Second quarter fixed annuity sales improved 13% to $21.5 billion from the first quarter due to strong indexed and fixed immediate annuity sales.
However, the recovery is still in the early stages. Total individual annuity sales for the first half of 2010 were $108.4 billion, 16% below the first half of 2009. Year-to-date, VA sales were up 8% to $67.9 billion; while fixed annuity sales slipped to $40.5 billion, down 39% compared to the same period in 2009. It is important to remember that VA sales hit a six-year low and fixed annuity sales were at record-high levels in the first quarter of 2009. The direction of both fixed and VA sales have changed over the last 18 months along with industry-wide adjustments related to risk, capital requirements and pricing.
We see increased confidence in the insurance industry and sales representatives becoming more comfortable with changes to VA products and riders. This confidence was evident from the broad VA sales growth in which two-thirds of VA companies increased sales over first quarter.
In addition, VA buyers continue to purchase VAs with guaranteed living benefit (GLB) riders. VAs with GLBs accounted for three-fourths of all new deferred VA sales. The GLB election rate, when available at purchase, remained strong at 87% during the first half of 2010, according to LIMRA quarterly Variable Annuity Guaranteed Living Benefit Election Tracking survey. Many VA buyers want the opportunity for growth in their portfolios and the security of guaranteed lifetime income from the GLB rider if needed.
For four consecutive quarters, fixed annuity sales fell sharply from the record-high levels set in the first quarter of 2009 before finally registering an increase in the second quarter of this year. Book value and market-value-adjusted (MVA) annuity sales grew nine percent to $9.7 billion in the second quarter after appearing to have hit a bottom in the first quarter. These sales faltered over the last year due to declining interest rate spreads.
