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Indexed Annuities and DIAs Are the Stars in 2012

After compiling the annuity sales data from the 4th quarter, LIMRA has released the total year sales numbers from 2012.  According to Insurance Networking News’ Carrie Burns in the article “2012 Annuity Sales: A Mixed Bag,” they are neither all bad or all good.  Fixed and variable annuity sales were down overall in 2012.  It’s not surprising, especially for variable annuities since so many insurance companies have either stopped selling them or scaled back guarantees to better hedge themselves in this time of low interest rates.  But on the other hand, indexed annuity sales and the new deferred income annuity sales saw tremendous increases last year.

Due to the products with sales losses, total annuity sales went down 8% in 2012 to $219.4 billion.  Total sales in the fourth quarter decreased by the same percentage to $52.6 billion.  Sticking with the 8% theme, that is also the percentage that variable annuity sales went down in the fourth quarter with sales of $35 billion.  From 2011 to 2012, variable annuity sales decreased 7% to $147.4 billion.  Fixed annuity sales of $17.6 billion were a 7% decline in the fourth quarter.  Yearly fixed annuity sales went down 11% and sadly hit an all-time low.  With low interest rates sticking around in 2012, many fixed rate products really took a sales hit and fixed annuities were no exception.

Sales of fixed rate deferred annuities were $25.7 billion, a 27% decline and the lowest sales since 1998.  In the fourth quarter, these sales were down 27% from the previous quarter.  Included in this number are book value and market value adjusted annuities.  The book value products were down 21% for the quarter and 29% for the year.  Market value adjusted annuities were down 17% for the quarter and 13% for the year.  Fourth quarter book value sales were $4.9 billion and market value adjusted sales were $1 billion.

Now onto the shining stars of the annuity business.  With record yearly sales of $33.9 billion, indexed annuities increased 5% in 2012.  The fourth quarter saw a small 2% increase to sales of $8.5 billion, although this was slightly less than the third quarter sales.  People are still loving the guaranteed lifetime withdrawal benefits of indexed annuities.  Eighty-seven percent of indexed annuities on the market offer GLWBs and 73% of the products sold had this rider added on by the purchaser.  Single premium immediate annuity sales were down 5% in 2012 to $7.7 billion, but they did have a sales increase in the fourth quarter.  Going up 5% to a sales volume of $2 billion could signal an upward swing for SPIAs as well.

The new kid in town, the deferred income annuity, has seen some of the largest growth in 2012 with sales of $1 billion.  From first quarter sales of $160 million to fourth quarter sales of $390 million, DIAs had a 150% sales increase over the course of the year.  Clearly they are not yet a huge part of the annuity industry overall, only accounting for around 1% of the total annuity sales in the fourth quarter.  But deferred income annuities are becoming very popular with the younger baby boomers aged 45-59.  Since they have $10 trillion to spend and like these new products, DIA sales should skyrocket in 2013.  There were some ups and downs this year for annuity products overall, so the industry will likely adapt as they have in the past and there may be a shift from some of the traditional products offered.

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