Sales of fixed annuities through all channels totaled $19.4 billion in the second quarter, a jump of 18% from the first quarter, according to a report by Beacon Research, which tracks fixed annuity sales.
"This is a nice increase, primarily due to spread advantages over Treasuries and" certificates of deposit, fixed annuities' main competitors, said Jeremy Alexander, the CEO of Beacon Research in Evanston, Ill.
"Rates were more attractive to both consumers and carriers"; the latter buy bonds to cover guarantees on fixed annuities.
When the spread between yields on fixed annuities and bonds is low, insurers often reduce rates on their products to make them less attractive; there is not much incentive to guarantee a fixed annuity rate when the profit is small on the bonds bought to cover those guarantees.
The recent market, however, has seen such tremendous demand for safe investments that yields have dropped on both fixed annuities and Treasuries and CDs, simply as a function of supply and demand.
Corporate bonds, which insurers buy to back annuities, have not been so popular, and their yields are higher, widening the spread, which means insurers have a bigger interest in making their fixed annuity yields attractive, which has in turn led to higher sales.
Alexander predicted that this trend would continue for at least another quarter, and he said he expects fixed annuity premium growth rates of at least 10% this quarter.
Tempering this bullishness, though, are record fixed annuity sales figures from a year ago, when blind panic about market volatility sent investors careening toward anything with a guarantee.
Compared to the second quarter of 2009, "this is the fourth consecutive quarter numbers have been down," Alexander said.
He noted that banks, in particular, which are usually kings in the fixed annuity space, are not recovering as well as he would expect.
Though second-quarter bank sales declined 3% year-over-year, first-quarter sales dropped 25%.
The difficult recovery, Alexander postulated, may have a lot to do with many banks' loss-leading efforts to make their CDs more attractive, which is having a knock-on effect on the fixed annuities their advisers sell.
Meanwhile, independent insurance agents have continued to do a roaring business in indexed annuities.
They offer some exposure to upward market movement but for the time being are categorized with fixed annuities.
These agents' sales of indexed annuities are up 20%, year-over-year, as fixed-income investors, turned off by low yields but afraid of direct market exposure, hunt for greater returns.