ASSET MANAGEMENT / RETIREMENT FUNDS
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SALES OF FIXED AND VARIABLE ANNUITIES

Fixed annuities guarantee that a specific sum of money will be paid each period, generally on a monthly basis, regardless of fluctuations in the value of the annuity issuer's underlying investments. Variable annuity payments are based on the portfolio of stocks in which the issuer invests so that the monthly payment may fluctuate, depending on whether the value of the investments goes up or down. Annuities may also be classified as immediate, which begin to pay as soon as the premium is received, or deferred, which accumulate assets before payments begin, generally at retirement. See also Life Insurance, Premiums by Line section of chapter 5 http://www.financialservicesfacts.org/financial2/insurance/lhpbl/ and Convergence, Insurance Companies, chapter 4 http://www.financialservicesfacts.org/financial2/convergence/inscos/

A hybrid annuity product is the equity index annuity, a non-traditional fixed annuity. A specified rate of interest guarantees a fixed minimum rate of interest like traditional fixed annuities. At the same time, additional interest may be credited to policy values based upon positive changes, if any, in an established index such as the S&P 500. The amount of additional interest depends upon the particular design of the policy. They are sold by licensed insurance agents and regulated by state insurance departments. Total sales reached a record $14 billion in 2003, according to the Advantage Compendium. (See also Life Insurance, Premiums by Line section of chapter 5 http://www.financialservicesfacts.org/financial2/insurance/lhpbl/ for a list of the leading writers of equity index annuities sold through banks.)
INDIVIDUAL ANNUITY CONSIDERATIONS, 1997-2003 (1)

($ billions)


Year

Variable

Fixed

Total
1997$87.9$38.2$126.1
199899.532.0131.5
1999121.841.7163.5
2000137.252.7189.9
2001111.074.3185.3
2002116.6103.3219.9
2003 (2)129.287.6216.8
(1) Considerations are LIMRA's estimates of the total annuity sales market.
(2) Preliminary.

Source: LIMRA International.
  • Variable annuity sales grew in 2003 by 10.8 percent. Sales in 2002 were up 5.0 percent from the previous year.

  • Fixed annuity sales dropped by 15.2 percent in 2003.

  • Total annuity sales fell 1.4 percent in 2003.

ANNUITY DISTRIBUTION SYSTEMS

The difference in distribution channels between fixed and variable annuities is related to the nature of the product. Variable annuities are similar to stock market-based investments and therefore attract a different type of customer from fixed annuities, which tend to be associated with other fixed rate products such as certificates of deposit sold by banks. In addition, state and federal regulators re q u i re people who sell variable annuities to register with the National Association of Securities Brokers as securities dealers. Career agents, agents who sell mostly the products of a single life insurance company, are more likely to sell variable annuities than independent agents because they have stronger ties to the company marketing them.
SALES OF INDIVIDUAL ANNUITIES BY DISTRIBUTION CHANNELS,
1999 AND 2003 (1)




(1) Preliminary.
(2) Financial planner sales included with stockbrokers prior to 2003.

Source: LIMRA International.


TOTAL NET ASSETS OF VARIABLE ANNUITIES, 1994-2003

($ billions)



Source: NAVA and Finetre/VARDS.

VARIABLE ANNUITY NET ASSETS BY INVESTMENT OBJECTIVE, 2003 (1)



(1) As of December 31, 2003.

Source: NAVA and Finetre/VARDS.


  • The equity segment grew from 47.9 percent in 2002 to 54.0 percent in 2003.