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Fixed annuity sales have bright prospects in the next five years, due in large part to anticipated strength in sales of income annuities and fixed index annuities, according to researcher Joseph E. Montminy.

In fact, income annuity sales are on such a tear that “their sales will double by year 2018,” predicted the assistant vice president at LIMRA Secure Retirement Institute (LIMRA SRI).

In 2013, income annuities totaled $10.5 billion, but by year 2018, they will likely total over $21 billion, he predicted.

 

Income annuities

According to LIMRA SRI figures, the 2013 income annuity sales total included $8.3 billion in sales of single premium immediate annuities (SPIAs), which start paying an income stream shortly after purchase. The total also included $2.2 billion in sales of deferred income annuities (DIAs), which start paying an income stream several years from policy purchase.

Montminy believes both products will enjoy strong sales gains in the next five years for several reasons.

For one thing, the products offer a simple value proposition, and that allows them to provide maximum payouts to the customer, he said.

Demand is another factor. Simply put, baby boomers will need more guaranteed retirement income as they reach retirement, he said, and some boomers will buy income annuities for that purpose.

Montminy pointed to the widely-expected upswing in interest rates in coming years as another factor. When the rates go up higher than where they are now, the payouts from income annuities purchased in that environment will be higher than they are today, making the products all the more appealing.

In addition, he said that the DIA side of the business is growing. There were only three insurers offering DIAs in 2011, he recalled, but there are 11 carriers selling the products now and “more are expected to enter the market this year.”

Three-fourths of the money going into the DIA products is coming from individual retirement accounts (IRAs), he said, “so as the IRA market grows, the sales volume in DIAs will grow.”

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