PORTLAND, OR--(Marketwired - September 29, 2015) - Annuity sales in the second quarter of 2015 declined 2.5 percent (to $58.4 billion) from the same quarter a year ago, marking the fourth consecutive second quarter-over-second quarter decline and setting the stage for the introduction of more attractive annuities, Annuity FYI announced today.
In addition, first half 2015 annuity sales were down 4.2 percent from the first half of 2014 -- $111.1 billion versus $116 billion. Annuities are insurance products that generally guarantee income for life.
The figures, which are reported with a substantial lag, are based on data aggregated by the Washington-based Insured Retirement Institute (IRI), the leading association for the retirement industry. The IRI gets its data from Beacon Research and Morningstar Inc. Annuity FYI is an informational online annuity resource.
Since 2008, eight quarters have posted higher annuity sales than the latest reported quarter. In this period, the record quarter was the second quarter of 2008, which posted sales of $67.3 billion. One type of annuity that had been bucking the downward trend -- fixed indexed annuities -- did just report its second-best quarter of all time, totaling $12.6 billion. But that was still down 2.7 percent from a record $12.9 billion in sales in 2Q 2014.
Annuity Sales Seasonality
Overall, second quarter sales did rise 10.8 percent from $52.7 billion in the first quarter, but there is typically a seasonal uptick in 2Q sales, partly swayed by the completion of income tax returns and the receipt of tax refunds. Second quarter annuity sales have been higher than first quarter annuity sales for six consecutive years.
Andrew Murdoch, senior vice president of market research at Annuity FYI, said declining annuity sales are obviously a negative for insurance companies but positive for potential annuity customers, who will probably get a better deal if interest rates increase just modestly. Because insurance companies earn most of their money from investments in bonds, higher rates will give them a financial cushion to offer more attractive products.
If 10-year U.S. Treasury notes, now 2.17 percent, increase just 1 percentage point -- a likely scenario over the next 18 months -- insurance companies will be pressured to offer more attractive annuities, Murdoch said. "Insurance companies will act because they want the business and can afford to do so," Murdoch said. "They have culled many higher-cost annuities from their portfolios and have strong balance sheets."
Scattered Signs of Better Deals
There are already scattered signs of insurers offering annuities with better terms, Murdoch said, adding that if interest rates rise a bit and turn a few incidents into a trend, this is also likely to push the annuity industry out of its slump. Also noteworthy, he said, is that insurance companies have improved annuity terms in the past, shortly after the start of the Great Recession in late 2008.
"And at that time, their balance sheets were in far worse shape than they are today," Murdoch said.
Over time, annuity sales have largely followed a see-saw pattern, impacted by shifting interest rates and a fluctuating stock market, IRI data shows. But that pattern has been deteriorating, Murdoch noted. For example, 2012 was a particularly bad year, with sales declining 8.4 percent to $211.9 billion, according to IRI data.
About Annuity FYI
Annuity FYI, founded in November 2000, is the nation's leading resource for learning about, comparing and selecting annuities. It offers annuity basics, describes the different types of annuities, and also helps annuity owners evaluate their annuities. In addition, it compares annuity rates, spotlights particularly attractive annuities and publishes informative articles about annuities. It attracts nearly 30,000 unique visitors a month. Learn more at www.annuityfyi.com.