Despite a growth spurt in variable annuity sales last year, overall annuity sales slowed in 2010 to $209 billion, down from $229 billion in 2009, according to the Insured Retirement Institute (IRI).
The slow-down in overall annuity sales stemmed from a decline in fixed annuity sales, which dropped by 31.2 percent to $71.7 billion in 2010, compared to $104.2 billion in 2009. Fourth quarter fixed annuity sales totaled $16.7 billion, a 13.7 percent drop from the previous quarter and a 14.3 percent decrease from fourth quarter 2009.
In a press statement released by the IRI, Beacon Research President and CEO Jeremy Alexander blamed the fourth quarter decline in fixed annuity sales on future interest rate expectations.
"Unlike the year-ago quarter, rates were rising in fourth quarter 2010. This created a disincentive to lock in available fixed annuity rates, " he said. "In addition, the spread between corporate bond and Treasury rates narrowed sequentially. Fixed annuities are backed mainly by bonds, so this made their rates relatively less competitive."
Variable annuities saw increased interest from buyers. Fourth quarter sales rose 18 percent over the same period in 2009 to $37.6 billion, and variable annuity assets reached a record $1.5 trillion in 2010.
Although overall annuity sales were down in 2010, they rebounded in the fourth quarter to $54.3 billion, up slightly from $53.3 billion in the previous quarter, and 5.7 percent above $51.3 billion in the fourth quarter of 2009.
"The annuity industry ended 2010 on strong and secure footing, with fourth quarter sales reaching the highest levels of the entire year," IRI President and CEO Cathy Weatherford said in a press statement.
Both fixed and variable annuities are designed to build retirement savings and are sold by life insurance companies. A fixed annuity offers a guaranteed rate of return; variable annuities offer the potential for greater returns but come with risks.