Variable annuities (VAs) have risen in popularity since their development in 1952. This increased attention is due to the products’ annuity benefits being coupled with the potential for market-based gains. Yet, it is this same potential for unlimited gain that has caused volatility in sales for companies issuing these products. Why? In exchange for the variable annuity’s unlimited potential for gains, this type of annuity also has unlimited potential for loss.
As a result of this risk/reward annuity feature, VA sales have historically fluctuated in tandem with the market. When the market goes up, VA sales typically increase. However, when the market declines, we usually see a corresponding decline in VA sales. Interestingly, when VA sales decline, there is generally an analogous increase in sales of fixed variety annuities (including traditional fixed, fixed indexed and multi-year guarantee fixed).