Sales of variable annuity products in the United States cratered 27% during the first quarter of 2009.
First quarter sales were $30.7 billion compared to $40.9 billion during the first three months of 2008.
At the same time, sales of fixed annuities surged 74% to $35.6 billion. This is the first time since 1995 that sales of fixed annuities have exceeded sales of variable annuities for two straight quarters.
This sales dynamic is not surprising and is largely a reaction to the market volatility experienced during the financial crisis. Despite the fact that inflation risks remain, fixed annuities are perceived as relatively stable and safe by many retirees. In addition, insurers are increasing the prices on many variable annuity features in light of the pain they have experienced during the financial crisis.
Investors may be wise to consider some of the living benefit features associated with variable annuities. While certainly more expensive than a year ago, certain guaranteed living benefits are able to hedge the downside of market risk while maintaining some upside possibilities should the market continue to rise from its recent lows.
Source: Bloomberg
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