Market research shows last year’s annuity sales broke records. An analysis of first financial reports from top-tier annuity sellers indicates an upward trajectory for 2015.
While decreasing interest rates threaten the popularity of certain annuity products, annuity sellers are thriving, benefiting from other products, like index annuities. These show promise as stock growth is positively impacting sales and providing greater value to annuity holders.
Overall sales figures confirm that the billion-dollar annuity industry, providing guaranteed retirement and investment tools, remains competitive and should continue to flourish.
Looking Back at 2014
The Life Insurance and Market Research Association (LIMRA) in February published a report on last year’s annuity sales trends. The Fourth Quarter 2014 U.S. Annuity Sales Survey shows total annuity sales rose to $235.8 billion, a 3-percent increase.
Sales of index annuities reached $48.2 billion, a 23-percent hike year over year. Overall fixed annuities hit $95.7 billion, increasing by 13 percent.
In Q4, however, immediate and deferred income annuity sales fell. Todd Giesing, LIMRA senior business analyst, attributes the decline to decreasing interest rates, which fell a third of a point to 2.17 percent during that quarter.
“Despite interest rates falling nearly a percentage point in 2014, indexed annuities and income annuity sales — fixed immediate and deferred income — topped record sales levels,” Giesing said. “The performance of these products certainly propelled overall annuity sales to increase in 2014.”
Industry Leaders Release Q1 Data
AIG and Lincoln Financial Group are among the top three sellers on LIMRA’s 2014 list of annuity sellers. Their financials provide indications of the extent to which annuity sales have propelled since 2014.
American International Group
AIG reports Q1 rang in strong sales of variable and index annuities in the Retirement Income Solutions product line. These sales increased by 13 percent compared to the previous year, and index annuities are primarily driving sales.
Sales of fixed annuities, however, did not fare as well, as the company received lower premiums and deposits for retirement. The company references the interest rate environment as a contributing factor for the downward trend.
Lincoln Financial Group
LFG’s reported income from Q1 operations reached $239 million, according to BusinessWire, an 11-percent increase from the previous year. It credits the equity market performance as a positive contributing factor for the change.
Fixed annuity deposits, however, decreased by 32 percent to $293 million. Interest changes are propelling some LFG contract holders to surrender annuity policies, resulting in realized investment losses for LFG.
Decreasing Interest Rates and Improving Equity Market
AIG and LFG are starting the year experiencing general annuity sales growth with smaller segments reporting lagging sales.
Both company reports cite the low interest environment as a catalyst for the decreasing profits for certain types of annuities. This trend is consistent with Giesing’s observation that low interest rates are stunting sales of immediate and deferred income annuities.
However, equity market growth is overshadowing these dips, as annuity sales momentum from 2014 continues, resulting in an increase in total sales among top sellers.
As of March 2015, the S&P 500 index had already increased by 1 percent for calendar year. This is a 13-percent improvement from this time last year.
MarketRealist, an investment information services company, attributes improved stock market performance to factors such as the value of the dollar, job growth and stable corporate balance sheets.
A more comprehensive look at 2015 should come in June when Q2 results are released. We’ll know then whether low interest rates and a robust stock environment are holding strong.
Alanna Ritchie has spent years studying, writing and learning to love the intricacies of the English language. Today, she works as a content writer for Annuity.org, where her primary focus is personal wealth management.