(Dow Jones) As the stock market shows signs of recovery and fears of increased inflation mount, older investors and retirees who turned to fixed annuities during the recession now may be looking the other way, according to new data out this week.
After experiencing heavy growth at the end of last year and hitting an all-time high in the first quarter of 2009, sales of fixed annuities fell 20% to about $21.9 billion during the third quarter, according to data released Thursday from Beacon Research, an Evanston, Ill. firm that tracks the data.
Fixed annuities are tax-deferred investment contracts sold by insurance companies that guarantee set payments for life or for a specified period of time. They differ from variable annuities, whose payments fluctuate with the performance of underlying investments.
Sales of market-value adjusted fixed annuities, which adjust the value of surrenders or withdrawals according to interest rate fluctuations, fell 37% to $2.7 billion. Book-value fixed annuities, which pay a declared rate of interest over a period of time, saw $9.9 billion in sales during the third quarter, a 30% drop from the third quarter of 2008. Fixed immediate and deferred income annuity sales fell 16% to $1.9 billion. Beacon estimates are based on sales of 53 insurance companies representing an estimated 86% of the market.
"We don't expect to see growth in sales until rates begin rising and it becomes more profitable for companies to issue fixed annuities sometime next year," said Jeremy Alexander, chief executive of Beacon Research.
Still, total market sales of fixed annuities are up 16% to $84.5 billion so far this year, compared with the first three quarters of 2008.
New York Life Insurance Co. led its peers in total fixed-annuity sales, with $1.7 billion, according to Beacon.
Pacific Life Insurance Co. rose to third place with $1.4 billion in fixed-annuity sales, marking the first time the carrier made it to the top 10 since Beacon began tracking sales in 1998. The carrier became the lead issuer of book-value fixed annuities and its Pacific Explorer deferred fixed annuity became the top-selling bank and wire house product in the third quarter.
Variable annuity sales are doing slightly better than fixed annuities, according to data out this week from Windsor, Conn., investment research group Limra International. Variable annuity sales dropped to $31.7 billion, down 1% from the second quarter 2009 and 16% compared with third quarter 2008.
Limra's estimates are based on data from 62 insurance companies, representing an estimated 97% of total sales.