Annuity Sales Jump Most Since 2002 on Interest Rates Gain

Sales of annuities jumped 17 percent in the fourth quarter, the biggest gain in 11 years, as higher bond yields buoyed insurers that offer the savings products.

Insurers sold $61.9 billion of annuities, compared with $52.7 billion a year earlier, according to estimates today from industry group Limra. The increase was fueled by sales of fixed annuities, which jumped 45 percent to $25.6 billion.

Annuities can guarantee returns for retirees, with the payouts typically tied to interest rates. The 10-year Treasury (USGG10YR) yielded an average 2.73 percent in the fourth quarter of last year, up from 1.69 percent in the same period in 2012.

“Consumer demand for fixed annuities has improved,” Jay Wintrob, the chief executive officer of American International Group Inc. (AIG)’s life insurance unit, said on a conference call with analysts on Feb. 14.

Premiums and deposits on fixed annuities at New York-based AIG’s retail operation almost quadrupled in the fourth quarter to $1.01 billion from $265 million a year earlier, according to data on the company’s website. The full-year figure almost doubled to $2.97 billion.

Rising interest rates let insurers like AIG offer higher payouts to customers while still earning a profit from the spread, or difference between the guarantee to the client and earnings from bond investments.

Variable annuity sales climbed 3.7 percent in the fourth quarter to $36.3 billion. For the full year, variable annuity sales fell 1.4 percent. Insurers such as MetLife Inc. have scaled back from the products, which are vulnerable to stock-market swings.

Variable annuities can guarantee investors’ payouts and let them defer taxes. The proportion of the products on which consumers chose guaranteed living benefits fell to 79 percent in the fourth quarter from 81 percent in the third, Limra said.

Broker Dealers

Indexed annuities, a type of fixed product with links to bonds and equity market returns, saw sales climb 40 percent to $11.9 billion. Third parties including broker dealers earn commissions from insurers for selling annuities.

“Improved interest rates make the product offerings more attractive,” Joe Montminy, an assistant vice president at Limra, said in the statement. “Another reason is the organic growth in the banking and independent B-D channels.”

The last time that total fixed annuity sales were higher was in the second quarter of 2009, when the figure was $29.2 billion, Mark Morris, a Limra spokesman, said in an e-mail.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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