by John Darer CLU ChFC CSSC
Some very positive news about annuities. For the first time since the Q3 of 2006, fixed annuity sales growth EXCEEDED variable annuity sales growth, according to the Life Insurance Market Reaserach Association (LIMRA).
Driving factors cited by LIMRA include:
- Short-term interest rates on CDs declined sharply in Q1 of 2008 while the average interest rate on one-year fixed annuities, including any bonus, experienced only a slight decline. This improving interest rate spread, coupled with a volatile and declining equities market, made fixed annuities an attractive option in Q1 2008,
Total fixed annuity sales continued to grow. In Q1 2008 improved to $21.3 billion, up 31% compared to the Q1 2007. LIMRA includes the following in the fixed annuities category (book value, indexed, and market-value adjusted annuities) and immediate annuities as well as structured settlements.
- Fixed deferred annuity sales jumped 34% to $18 billion
- Fixed immediate sales jumped 21% to $1.7 billion
- Structured settlements jumped 7%, reaching $1.6 billion.
Variable annuity sales slowed compared to the sales growth over the last two and a half years, rising only 1% over the Q1 2007, reaching $42.1 billion, likely due to the uncertainty in investment markets.
Perhaps 2008 is the year that the structured settlement industry breaks its duck and pushes through the plateau in sales.
- An increase income tax rates in America will not only make existing structured settlements more valuable but will make structured settlements more valuable to enter into. It will also help new structured celebrity endorsement fee sales, and other "non qualified structured settlement" or "non qualified assignment" sales as well as deferred income annuities or defined benefit annuities
- An increase in capital gains rates (as Obama is proposing) would make structured sales annuities more attractive.
- An increase in interest rates will make structured settlements more attractive as people will appreciate getting an attractive rate without the market risk.
Let's see how Q2 turns out!