Indexed Annuity Sales To Exceed $60B In 2016

WINDSOR, Conn., Aug. 2, 2016—LIMRA Secure Retirement Institute forecasts a 15-20 percent increase in retail indexed annuity sales in 2016, compared with 2015 results.

“For eight consecutive years, indexed annuities have enjoyed significant growth.  Based on current sales trends, existing economic conditions and the imminent regulatory changes, we expect indexed annuity sales to accelerate in the second half of the year,” said Todd Giesing, assistant research director, LIMRA Secure Retirement Institute.  “However we expect the sales gains attained in 2016 to be erased in 2017 when the Department of Labor (DOL) fiduciary rule goes into effect.”

Nearly two thirds of indexed annuity sales in 2015 ($34 billion) were funded through IRAs or rollovers from retirement accounts (qualified assets). Once the DOL fiduciary rule is fully implemented, financial professionals who sell indexed annuities purchased with qualified assets will need to use the BIC exemption process to prevent these sales from being considered ‘prohibited transactions’.

“The challenges of implementing the BIC exemption will have negative impact on indexed annuity sales in 2017,” noted Giesing. “For that reason, we are projecting a 30-35 percent decline in indexed annuity sales in 2017, bringing sales totals down to 2013 levels (nearly $40 billion).”

The DOL fiduciary rule also will have a significant impact on independent agents who work through Independent Marketing Organizations (IMOs). This distribution channel accounted for two thirds of the indexed annuities sold in 2015.

Under the new DOL rule, IMOs are not recognized as financial institutions.  As such, these organizations cannot execute the best interest contract with the policyholder on behalf of the agent. While industry analysts expect many IMOs will eventually change their status and become Broker-Dealers, which are recognized as financial institutions by the DOL, there will likely be others who leave the market or consolidate with another organization, shrinking the overall channel’s reach.

“While all of this sounds very dire, we believe the demand for principal protection and investment growth with an option for guaranteed income from future retirees will spur innovation – both in distribution and product design,” Giesing said.  “As companies acclimate to the new regulatory environment, our expectations are for indexed annuity sales to experience growth in 2018 and beyond.”