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First Quarter Annuity Trends Help Forecast the Year

First quarter annuity sales indicate that 2015 could be a good year for annuity products.  This information comes from Learn Bonds’ “Q1 Annuity Sales Reports Indicate Positive Growth.”  After last year’s record breaking annuity sales, the annuity industry might continue along the same path this year.  Total annuity sales were $235.8 billion last year.  This was 3% higher than the year before.  Fixed annuity sales increased by 13%, led by strong indexed annuity growth.  Indexed annuity sales were 23% higher in 2014 than they were in 2013.  Lower interest rates have caused a shift in which annuity products are selling most, causing indexed annuities to rapidly increase in popularity.  Both indexed and income annuity sales hit record levels in 2014 despite much lower interest rates.

Two of the top three annuity sellers are AIG and Lincoln National.  You can get a good picture of the state of the annuity industry by looking at their first quarter financials.  AIG, or American International Group, saw strong annuity sales from both variable annuities and indexed annuities that are included in their Retirement Income Solutions line of products.  Those sales were up 13%, mostly because of the indexed products.  Their fixed annuity sales were down during the first quarter.  AIG believes that low interest rates are one of the main reasons for this product’s sales decline.

When you look at Lincoln Financial Group’s first quarter income from operations, it was up 11% from last year.  The company says that their equity market performance really helped them reach this income level of $239 million.  Lincoln Financial’s fixed annuity deposits went down to $293 million during the first quarter, which is 32% lower than last year.  They also attribute this fixed annuity decline to low interest rates.  Some of their investors are turning in fixed annuity products, leading to some investment losses for the company.

Both of these top annuity companies are seeing overall annuity sales growing, despite a decline in some of the smaller groups of annuity products.  Experts have said that lower interest rates have caused a decline in immediate and deferred income annuity sales.  AIG and Lincoln Financial both said that this market issue has led to smaller profits for some of their annuity product lines.  The good news is that equity markets are growing.  Positive annuity growth from last year coupled with strong equity markets is leading to overall increases in annuity sales.  This shows that the strong equity markets are making more of an impact than the low interest rate environment.  The S&P 500 was up 15% from last year in March.  Second quarter annuity sales results come out this month.  That will be an even better gauge of what 2015 will bring for total annuity sales.  We’ll also look to see whether equity markets and interest rates remain on the same path.  First quarter annuity sales indicate that indexed annuity products will remain an important part of the annuity market this year.

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