Fixed Annuity Sales Jump, VA Sales Dive In 1Q

WINDSOR, Conn., May 19, 2016—Total annuity sales were $58.9 billion, 9 percent higher than prior year results, according to LIMRA Secure Retirement Institute First Quarter 2016 U.S. Retail Annuity Sales Survey.

This is the third consecutive quarter of positive growth.

“The start of the year saw tremendous volatility with steep declines in the equity markets,  falling nearly 10 percent within the first three weeks” noted Todd Giesing, assistant  research director, LIMRA Secure Retirement Institute.  “While it did rebound into positive territory by the end of the quarter, the substantial volatility hurt VA sales and helped fixed products as people sought out safety being offered in indexed and fixed-rate deferred products.”

In the first quarter, VA sales totaled $26.6 billion, down 18 percent.  This is the lowest level of VA sales since 2001.  The declines were industry-wide with 19 of the top 20 manufacturers reporting decreases.  The Institute is forecasting VA sales will drop 15-20 percent in 2016 and another 25-30 percent in 2017, when the Department of Labor (DOL) fiduciary rule goes into effect in April 2017.

“We are seeing a significant shift in the annuity market,” said Giesing.  “In the first quarter, VA sales had a 45 percent market share, compared with a 60 percent market share just a year ago. We have to go back 20 years – to 1995 – to find when the VA market share was 45 percent or lower.”

In the first quarter, sales of fixed annuities jumped 48 percent, to $32.3 billion.  All retail fixed products experienced double-digit growth, compared with prior year.

Indexed annuity sales jumped 35 percent to $15.7 billion. All of the top 10 writers reported increases.  Indexed annuity sales have experienced 8 consecutive years of positive growth and we are forecasting that indexed annuities will continue to see strong growth throughout 2016.

“We believe annuity manufacturers and advisors started to focus on indexed annuities in anticipation of the final DOL fiduciary rule, not knowing that indexed would be pulled under the BICE in the final rule,” Giesing said.

Sales of fixed-rate deferred annuities, (Book Value and MVA) were up 90 percent in the first quarter. It is not uncommon to see fixed-rate deferred sales spike during times of heightened equity market volatility.

Income annuities had a strong quarter despite the drop in interest rates.   First quarter fixed immediate annuity sales were $2.5 billion, up 25 percent compared with 2015 results.  Deferred income annuity (DIA) sales jumped 29 percent in the first quarter, to $729 million.

Eleven companies are now offering QLAC products, and 12 percent of first quarter 2016 DIA sales were in QLAC compliant products. While this is small part of the DIA market, the Institute predicts sales will see an uptick in 2016.

Given the sharp interest rate decline this quarter, the growth of these products (SPIA and DIA) demonstrates the strong demand for guaranteed income.

Given current market conditions, the Institute projects overall fixed sales to improve 15-20 percent in 2016. However, with the implementation of the DOL fiduciary rule in 2017, LIMRA estimates fixed annuity sales to drop 5-10 percent.

The Institute expects overall sales in 2016 to be level with 2015 results and to see declines of 15-20 percent in 2017.

The first quarter 2016 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 first quarter 2016, please visit First Quarter 2016 Annuity Rankings. To view variable, fixed and total annuity sales over the past 10 years, please visit Annuity Sales 2006-2016.

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