Beacon CEO: 3Q US Sales of Fixed Annuities Propelled by Widening Credit Spreads
December 11, 2013 by Fran Matso Lysiak
EVANSTON, Ill. – The U.S. fixed annuity industry experienced one of its strongest periods during the third quarter of this year as credit spreads widened and long-term rates on Treasuries rose, which helped propel sales, according to the chief executive officer of Beacon Research.
During the third quarter, the 10-year Treasury, an industry benchmark, was 100 basis points higher than the one-year Treasury to around 2.8%, Jeremy Alexander, CEO of Beacon, told Best’s News Service.
As credit spreads widened, insurers received better yields from their investments in non-Treasury securities, Alexander said, noting this made it more profitable for insurance companies to offer higher credited rates to customers. “There was a real opportunity for insurers in the quarter to put profitable business on the books,” Alexander said, pointing to Western National, a unit of American International Group (NYSE: AIG) as one big example.
2012 had represented the fourth-straight year of annual sales decline for these retirement saving and income products (Best’s News Service, June 14, 2013).
“Quarter-over-quarter sales were up among all fixed annuity product types and, for the first time since 2008, in all major distribution channels,” Alexander said.
Maintaining its leadership in overall sales of fixed annuities was New York Life, with third-quarter sales of $2.28 billion, according to Beacon. Most of New York Life’s sales came from market value adjusted products, followed closely by immediate, Alexander said.
Remaining in second place was Security Benefit Life Insurance with sales of $1.8 billion. Allianz Life Insurance Company of North America, a unit of Germany’s Allianz SE, maintained third place, with sales of $1.3 billion.
Catapulting from 14th place in the second quarter to capture fourth place in the third was Western National, with sales of $1.2 billion.
By product type, joining the top five were two fixed-rate, non-MVA products: One from Western National, and another from Massachusetts Mutual, according to Beacon. These were the first fixed-rate, non-MVA annuities in the top five since second quarter 2011.
Rounding out the top five once again in overall sales was Great American Life Insurance, part of GAFRI Group, with third-quarter sales of $1.14 billion, according to Beacon.
Security Benefit, Allianz Life and Great American primarily sell indexed annuities. With indexed, the insurer invests most of the customer’s principal in bonds to ensure the policy will generate a small annual return but uses a small portion of the premium to buy options in a stock market index, usually the S&P 500. Options that are exercised can result in additional interest credited to a policy, potentially more than an investor might achieve through other fixed-income investments.
Sales of immediate annuities, which include traditional immediate and deferred income annuities, totaled $2.8 billion, setting quarterly and year-to-date records, according to Beacon.
Although an emerging product that represents a tiny slice of the overall market, sales of deferred income annuities rose more than 300% from last year. They now represent 22% of immediate.
A deferred-income annuity occupies a middle ground between fixed-deferred and immediate. If the payouts begin within 13 months of purchase, it’s an immediate and if the payouts begin more than 13 months after purchase, it’s a deferred income annuity, according to Beacon (Best’s News Service, Sept. 10, 2012).
Helped by the highest sales of fixed annuities since the second quarter of 2009, third-quarter U.S. annuity sales industrywide rose to $57.5 billion, an 8.7% increase from the same period a year ago, according to the Insured Retirement Institute, which partners with Beacon on fixed annuity data.
Separately, LIMRA Secure Retirement Institute noted that market share for fixed-rate deferred annuities reached 40% of total fixed annuity sales in the third quarter.
“At the pace seen in the past two quarters, we expect total fixed annuity sales for 2013 to exceed last year’s numbers for the first year-over-year increase since 2008,” Alexander said, noting the outlook for indexed and deferred income annuities, in particular, remains strong.
(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)