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Lower Annuity Sales in 2012 for Many Reasons, Not All of Them Bad

While the total annuity sales last year were at their lowest level since 2005, I don’t think that’s all bad news.  Part of the reason for this decline has been steadily low interest rates combined with low consumer confidence, but there’s another reason for the decline as well.  Hopefully, fewer annuities are being sold to the wrong clients as the industry works hard to get rid of unethical advisors.  It’s important for the right annuities to be sold to the right people, even if that means a decline in sales.  Now, these other reasons are absolutely part of the reason for the decline, so the annuity industry is looking for ways to increase consumer confidence and offer products that are desirable despite low fixed annuity rates.  Teck Lim of Financial Planning gave a summary of last year’s annuity sales in “Annuity Sales at Lowest Level Since 2005.”

Annuity sales were $219.7 billion in 2012, which was an 8.6% decrease from the previous year.  These sales results came from LIMRA’s annual study.  The highest sales were Jackson National Life’s $22.4 billion.  With variable annuity sales of $20 billion, Prudential Annuities was at the top of this category.  When it came to fixed annuities, Allianz Life of North America had the highest sales with $5.5 billion.  Insurance companies want to offer the best deals that they can to consumers, but they have to make sure that they aren’t offering annuity rates that will make them incur losses.

The terrible markets of 2008 made the safety of annuities very popular, but as interest rates have declined, consumers are worried that inflation will overtake their modest returns.  Consumers who want to protect their principal are still turning to annuities though.  Their income isn’t really increasing and they are paying higher taxes, so the safety of annuities is still desirable.  As markets change, insurance companies adapt and make their products more desirable to consumers.  Fixed indexed annuities are one example of that.  Overall fixed annuity sales have declined, but the hybrid indexed annuity sales have increased steadily to a record high of $33.9 billion.  With a 5% increase from 2011 to 2012, indexed annuities have been the annuity sales leaders.  As the industry adapts and works to match consumers with their best annuity products, LIMRA forecasts that demand for annuities will remain strong and increase in the long term.

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