Second-quarter 2013 sales results for the U.S. annuity industry, based on data reported by Morningstar, Inc. and Beacon Research, reveal a 9.9% increase to nearly $54.5 billion from $49.6 billion for the previous quarter.
Year-over-year, however, that sales number is down 1.4% from $55.3 billion in the second quarter of 2012.
"Rising interest rates, along with the steepest yield curve in nearly two years, helped drive second-quarter fixed annuity sales growth," says Beacon Research president Jeremy Alexander. "Strong demand and new product introductions boosted deferred income annuity sales nearly 40% from first quarter."
The Insured Retirement Institute also recently shared numbers emphasizing the success of deferred income annuities - last year deferred income annuities generated about $1 billion in sales and are expected to be the fastest growing annuity product in terms of sales, it says. Now, variable and fixed annuities are in the spotlight, as each showed strong growth in the second quarter.
In fact, fixed annuity sales rose to their highest quarterly level since the fourth quarter of 2011. Sales totaled $17.14 billion, up 14.6% from just under $15 billion in the first quarter and up 0.2% from $17.10 billion in the second quarter of 2012, according to Beacon Research. Meanwhile, variable annuity total sales topped $37.3 billion in the second quarter of 2013, according to Morningstar. This is a 7.8% increase from $34.6 billion in the first quarter, but a 2.2% drop from nearly $38.2 billion in the second quarter of 2012.
"In previous quarters, demand for lifetime income was balancing headwinds from low interest rates," says Cathy Weatherford, IRI president and CEO. "Now with rates rising, we are seeing sales swing upward."
Justin Stephani is Associate Editor for Insurance Networking News, a SourceMedia publication.
Are annuities a bad idea for retirees?
By Donald J. Korn
In opposition to long-standing conventional wisdom and research that extolls annuities' ability to provide lifelong income, most households should not annuitize any of their wealth, according to a study from the Congressional Budget Office. In explaining their conclusion, the study's authors, Felix Reichling of the CBO and Kent Smetters, from the Wharton School, state that "the present value of the annuity stream falls after a negative shock to health that reduces a household's life expectancy." At the same time, the authors state that negative health shocks often produce "correlated costs" such as a loss of income, an increase in uninsured medical outlays, or both. Such factors, along with the "liquidity constraints" of annuities, combine to reduce their appeal.
"Many other research efforts find in favor of annuities," said Bob McCommon, senior vice president and director of annuity sales and operations at Wunderlich Securities in Memphis, and there is still a place for them. "When [participants] need maximum income in order to cover essential needs, and concerns for legacy are minimal, then advisers see the benefits of immediate annuities."
Donald Jay Korn writes for Financial Planning, a SourceMedia publication.
