Low interest rates have cut into the popularity of the common retirement vehicle.
Allianz Life Insurance Co. of North America, long a power in annuities, said Friday that sales of the popular retirement vehicles have dipped amid consumer caution and historically low interest rates.
The company reported operating profits of $381 million in the first half of 2012, up 21 percent, but the increase was largely due to a larger asset base and gains on its investments, including some unusual one-time gains on larger bond investments, Allianz's vice president of finance, Marc Olson, said in an interview.
Sales of primary annuity products sagged, and Olson blamed cautious consumers.
"We see people taking more time to make major financial decisions in this current economic environment," Olson said.
Annuities are insurance products, often used for retirement, that pay out a regular stream of income payments. Fixed annuities offer a guaranteed payout; variable annuities are higher risk and offer a stream of payments based on the performance of underlying investments.
The Golden Valley-based insurance company said its fixed annuity premiums dropped 15 percent in the first half of this year to $2.9 billion, down from $3.3 billion in the first half of 2011.
Most of that business is in fixed index annuities, which are tied to an external index such as the S&P 500. Allianz dominates the fixed index annuity market with its top-selling MasterDex X.
Variable annuity premiums were flat.
Market analyst Sheryl Moore, head of AnnuitySpecs.com in Des Moines, Iowa, said Allianz's numbers are about low interest rates.
"You can't even offer a competitive interest rate for the consumer much less make a profit as an insurance company or compensate the agent for the sale," Moore said. "Allianz's results were actually pretty good relative to a lot of other companies with the same line of business."
Sagging annuity sales had Allianz taking comfort in its old-line, and much smaller, life insurance business. Life insurance sales more than doubled in the first half of the year from the same period a year earlier, to $31 million.
That was thanks to a new fixed-index universal life insurance product Allianz launched last year called Allianz Life Pro+, which provides a life insurance death benefit but also has a cash value that builds up and allows people to take out loans against it at an attractive rate.
Olson called the new product "transformational" for Allianz's life insurance business.
"It's performing better than expected," he said.
Since the recession, persistent low interest rates, a volatile stock market and regulatory issues have weighed on the annuities industry, which has seen major insurers dialing back annuity products or fleeing the business altogether.
Olson, at Allianz, noted that most of the companies ditching annuities are reacting to difficulties with variable annuities, not fixed annuities, because it's harder for insurers to control their risks on variable annuities. Plus, annuities weren't their main business.
Jennifer Bjorhus 612-673-4683