Annuity sales in 2012 declined overall compared with 2011, but were stable compared to 2010 levels, according to a report from The Insured Retirement Institute (IRI), based on data from Morningstar Inc. and Beacon Research. Income annuities, however, continued to post record sales in Q4 2012, as consumers look to generate guaranteed lifetime incomes.
The continued growth in income annuity sales reflects two trends that we are seeing in the marketdemand and innovation, said Cathy Weatherford, IRI President and CEO. To ensure that they have guaranteed retirement income for the remainder of their lives, many consumers are turning to income annuities as a type of longevity insurance. To meet this demand, more and more companies continue to innovate and develop new products. We are seeing this now with the growth of deferred income annuity (DIA) product offerings. We anticipate that this growth will lead DIAs to be the fastest growing product on a percentage basis in 2013 and will contribute to strong income annuity sales during the next year.
Annuity sales totaled $50.6 billion industry wide in Q4 2012, a 4.3-percent decrease compared to $52.9 billion in Q3 2012, and down 7.1 percent from $54.5 billion in Q4 2011. Annual industry-wide sales in 2012 were $211.8 billion, down 8.4 percent from $231.1 billion in 2011; total sales in 2010 were $214.7 billion.
Income annuity sales were $2.38 billion for Q4 2012, a new quarterly record, and have increased four-consecutive quarters, according to Beacon Research. That figure marked a 0.3 percent increase from $2.37 billion in Q3 2012, and a 7.2 percent increase from $2.22 billion in Q4 2011. For the year, income annuity sales were $9.2 billion, a new record, and an 8.5 percent increase from $8.5 billion during 2011.
Variable annuity sales totaled $34.4 billion in Q4 2012, a 5.4 percent decrease from $36.3 billion in Q3 2012, and were down 7.7 percent from $37.2 billion in Q4 2011, according to Morningstar. Variable annuity sales totaled $145 billion for the year, a 6.5 percent decrease from $155.5 billion in 2011, and up 5.1 percent from $138.3 billion in 2010.
Variable annuity total net assets in Q4 2012 increased to $1.64 trillion, from $1.62 trillion in Q3 2012, and increased 9.1 percent from $1.5 trillion in Q4 2011. In Q4 2012, qualified sales were $22.4 billion, nonqualified sales were $11.9 billion. Annual qualified sales were $97 billion, and nonqualified sales were $48 billion. Variable annuity net sales were negative $599 million for Q4 2012, annual net sales were $14 billion.
Weakness in net cash flow during the fourth quarter was largely attributable to significant outflows from group contracts as an aging baby boomer workforce rolls out of qualified retirement plans, said Frank OConnor, product manager, Morningstar Annuity Research Center. Meanwhile, the drop in sales year over year appears driven more by capacity constraints and carrier exits than by reduction in demand for the products, as evidenced by strong sales reported from companies offering lifetime income guarantees.
Fixed annuity sales were $16.2 billion in Q4 2012, a 2.2 percent decrease from $16.6 billion in Q3 2012, and a 6.5 percent decrease from $17.3 billion in Q4 2011, according to Beacon Research. Fixed annuity sales totaled $66.8 billion for 2012, a 11.6 percent decrease from $75.6 billion in 2011. Qualified sales for Q4 2012 were $8.26 billion, nonqualified sales were $7.94 billion. For the year, qualified sales were $33.8 billion; nonqualified sales were $33 billion.
Income annuity sales have increased for three consecutive years, said Jeremy Alexander, Beacon Research President. These products had record-high sales in 2012, and this growth was driven by DIAs. Indexed annuity sales also hit a record high in 2012, though results declined a bit from third to fourth quarter. Beacon expects that demand for retirement income will help both income and indexed annuities set new sales records in 2013.