US fixed annuity sales rocket ahead

Fixed annuity sales continued to surge
in the third quarter of 2008, driven by favourable factors annuity
market analyst Jeremy Alexander believes are still firmly in place.
The fixed annuity-sales boom is also notable for the rapid growth
of the bank sales channel and increased market share of foreign
insurers.

Driven by market factors
strongly in their favour, fixed annuity sales in the US continued
their winning streak in the third quarter of 2008 reports research
firm Beacon Research, rising by 54 percent compared with the third
quarter of 2007 to $27.1 billion. This represents the highest sales
since Beacon began recording data in 2003.

“Third-quarter conditions continued to be favourable,” said
Beacon CEO Jeremy Alexander. “The interest rate environment gave
fixed rate annuities a competitive advantage over conservative
alternatives including bank certificates of deposit, while the
troubled markets prompted a pronounced flight to safety.”

On a year-on-year basis, third-quarter growth in fixed annuity
sales matched the pace achieved in the second quarter of 2008 – but
on a quarter-on-quarter basis slowed from 29.7 percent to 10.2
percent. During the first three quarters of 2008 sales stood at
$70.6 billion, up 50 percent compared with the first three quarters
of 2007.

Robust fixed annuity sales contrast mark-edly with the variable
annuity market’s poor performance. According to financial services
organisation LIMRA sales in the first nine months of 2008 fell 10
percent compared with the first nine months of 2007. During the
third quarter banks continued to improve their pos- ition as a
fixed annuity sales channel. Beacon estimates that banks accounted
for total sales of $9.2 billion, up 80 percent compared with the
third quarter of 2007. This increased banks’ market share from 28.5
percent in the second quarter of 2008 to 33.9 percent.

“Bank sales of fixed annuities began to improve in
fourth-quarter 2007 and have grown explosively ever since,” noted
Alexander.

Dutch insurer Aegon and its Transamerica unit excelled, with
total bank channel sales up 42 percent compared with the previous
quarter to $1.67 billion. This boosted the combo from third to
first position, ousting American International Group’s (AIG) unit
AIG Annuity Insurance which fell to second position.

AIG recorded sales of $1.61 billion, down 18.4 percent from the
previous quarter and placing it in second position in the bank
channel. In the process, New York Life (NYL) moved from second to
third position with sales of $1.48 billion. However, in the total
fixed annuity market NYL remained firmly in top position with sales
of $2.5 billion, up 13.6 percent on second-quarter sales.

AIG also lost substantial ground in the overall market, falling
to fourth position on third-quarter sales of $1.71 million, down
18.2 percent compared with the second quarter. Compared with the
first quarter, when AIG held top market position, sales were down
37.1 percent from $2.72 billion.

Foreign insurers gain ground

Overall, US insurers lost
ground to foreign insurers during the first three quarters of 2008.
In the first quarter of 2008 there were only two foreign insurers
in the top 10 – European insurers Aviva and Allianz with sales of
$1.28 billion and $1.14 billion, respectively. Their combined sales
represented 23.5 percent of the $10.28 billion sales of the top 10
players.

In the third quarter the picture changed markedly, with
Aegon/Transamerica entering as a third foreign player in the top 10
with sales of $1.77 billion. This placed it in third position.
Aviva also enjoyed robust growth, with policy sales up 63 percent
compared with the first quarter to $2.09 billion, boosting it from
third to second position. Allianz also performed well, increasing
sales by 20 percent compared with the first quarter to $1.37
billion, though this was not enough to prevent it slipping from
fourth to fifth position.

In total the three foreign insurers recorded third-quarter sales
of $5.22 billion, representing a 38.8 percent share of total sales
of $13.47 billion by the top ten players.

Of the four product types, book value annuities (BVA) dominated
with sales of $13.5 billion, almost double third-quarter 2007
sales. BVAs pay a constant rate of interest during a contract’s
life. Indexed annuities were the second-biggest seller though sales
of $6.9 billion reflected a minimal 1 percent increase compared
with the third quarter of 2007.

In growth terms, market value-adjusted annuities (MVA) followed
BVAs with an increase of 53 percent to $4.2 billion. With MVAs,
interest rates are adjusted in line with market trends. Also
showing strong growth were immediate annuities with sales up 43
percent to $2.4 billion.

Overall, an impressive performance from the fixed annuity market
with more to come believes Alexander, who said: “Fourth quarter’s
economy suggests fixed annuity sales should be even stronger ,
provided risk-adverse consumers continue to feel safe entrusting
their money to the life insurance industry despite the problems of
some companies.”