Indexed Annuities Have Record-Breaking 3Q

WINDSOR, Conn., Nov. 19, 2015—U.S. annuity sales totaled $60.6 billion in the third quarter 2015, improving 4 percent compared with prior year, according to LIMRA Secure Retirement Institute's third quarter U.S. Individual Annuities Sales Survey

“Despite high volatility, a significant market correction and lower interest rates, total annuity sales – driven by substantially strong fixed-rate deferred and indexed annuity results – recorded positive growth in the third quarter,” said Todd Giesing, assistant research director, LIMRA Secure Retirement Research.  “There was definitely a flight to safety with every fixed product except fixed immediate and structured settlement annuities recording positive growth.”

For the first nine months of 2015, total annuity sales were $175.3 billion, 2 percent lower than prior year.

Variable annuity (VA) sales were negatively impacted by the market volatility, falling 7 percent in the third quarter to $32.9 billion.  Year to date, VA sales dropped 4 percent year over year, to $101.3 billion.

Nineteen of the top 20 VA writers reported declines quarter over quarter (the top 20 VA companies write about 93 percent of VA sales).

“There has been a significant shift in VA market share over the past several years,” said Giesing.  “Today, VA sales make up 54 percent of the overall annuity business, down from 67 percent just in 2012.  This decline in VA market share has certainly contributed to the growth in the indexed annuity market”

The VA election rate for GLB riders (when available) was 78 percent in the third quarter.  This is one percentage point higher than prior quarter and prior year.

Sales of fixed annuities increased 21 percent in the quarter, to $27.7 billion.  In the first nine months of 2015, fixed annuity sales increased 2 percent, to $74 billion.

“Despite the decline in rates, fixed annuity writers have been able to offer competitive rates.  Coupled with the equity market volatility, we believe the safety of fixed products is being seen as a safe haven,” noted Giesing.

Indexed annuity reached record-breaking levels.  Total sales were $14.3 billion, up 22 percent and 10 percent higher than the previous best quarterly results.   This growth was driven by many companies, rather than just the top players as we have seen in the past.

While all channels are seeing growth in indexed annuity market, the bank channel has experienced remarkable growth.  Bank sales of indexed annuities now represents 18 percent of sales, up from 6 percent in 2011.  The Institute credits this growth to product innovation ─ companies have developed simpler products, without GLB riders, as an alternative to bank CDs.

YTD, indexed annuity sales rose 7 percent at $38.4 billion.

The election rate for indexed annuity GLBs (when available) dropped 8 percentage points from prior quarter to 60 percent.  Institute researchers believe the increase of bank sales’ market share (which tend to be sold without GLB riders), as well as more consumers’ shifting priorities (from income generation to principal protection) seeking safety from recent market volatility contributed to the decline.

Sales of fixed-rate deferred annuities rebounded in the third quarter, improving 32 percent to $9.1 billion. YTD, fixed-rate deferred sales were nearly flat compared with prior year, totaling $23.1 billion.

Despite lower interest rates, single premium immediate annuity sales were flat in the third quarter at $2.3 billion.  Total SPIA sales were $6.5 billion, down 12 percent for the first three quarters of 2015.

Deferred income annuity (DIA) were $683 million, growing 2 percent compared with third quarter of 2014.  YTD, DIA sales were dropped 7 percent from prior year at $1.9 billion.

“We are seeing market share spread out among the top ten writers and anticipate DIA sales to increase at a slow, steady pace for the foreseeable future,” Giesing commented.

The LIMRA Secure Retirement Institute can report that 11 companies are now offering QLAC products. While this is small part of the DIA market, the Institute predicts sales will see an uptick in 2016.

The 2015 third quarter Annuities Industry Estimates can be found in the updated Data Bank. To view the top twenty rankings of total, variable and fixed annuity writers for second quarter 2015, please visit 2015 Third Quarter Annuity Rankings. To view variable, fixed and total annuity sales over the past 10 years, please visit Annuity Sales 2005-2014.

LIMRA Secure Retirement Institute's third quarter U.S. Individual Annuities Sales Survey represents data from 96 percent of the market.