4Q Annuity Sales Show Market Moving on From Fiduciary Rule

Overall fixed and variable fourth-quarter annuity sales of $50.8 billion were flat compared to the year-ago period, a sign that the market is adjusting to the Department of Labor fiduciary rule, a market expert said Wednesday.

Fourth-quarter sales of fixed annuities fell 2 percent to $26.1 billion compared to the year-ago period, while sales of variable annuities also fell to 2 percent, to $24.7 billion, LIMRA Secure Retirement Institute reported.

Overall 2017 sales of fixed and variable annuities fell 8 percent to $203.5 billion compared to 2016.

“The (fourth quarter) numbers did bounce back, which is an optimistic sign,” said Todd Giesing, director of annuity research for industry tracker LIMRA.

Analysts were anxious to see whether annuity sales would continue their downward trajectory from the third quarter, or whether sales would flatten out, after a tumultuous 12 months clouded by the fiduciary rule, parts of which went into effect in June.

“These are solid results, especially with the trajectory we appeared to be on after the third quarter,” Giesing said.

Overall third-quarter fixed and variable annuity sales saw a historic drop. Sales fell 13 percent to $46.8 billion compared with the year-ago period.

“Once we got past that, we’re now back to the new normal,” Giesing said. “These are both positive signs for variable and fixed annuities.”

Variable Annuities

Variable annuity sales in 2017 fell 9 percent to $95.6 billion. Analysts had expected the segment to shrink as insurers pulled back on product guarantees and adapted to the fiduciary rule, which made it more cumbersome to sell commission-based annuities.

Buffered variable annuities, also known as structured variable annuities, were the variable annuity segment’s bright spot as fourth-quarter sales rose 10 percent compared with the year-ago quarter, LIMRA reported.

Buffered variable annuities finished 2017 with sales soaring 25 percent to $9.2 billion compared with 2016, about where analysts had expected.

“Structured annuity sales saw impressive growth through independent broker-dealers in 2017,” Giesing said.

Though buffered variable annuities appear to have made a place for themselves, sales did level off compared to the third quarter, a sign that sales strength of these structured products may not be quite as robust as data indicate.

Only a handful of big insurers – Axa, Allianz and Brighhouse to name a few – with deep and broad distribution networks sell buffered variable annuities and the torrid pace of sales in that subsegment may slow this year.

“As we add carriers, we can expect continued growth, but I would expect the pace of growth to slow,” Giesing said.

Indexed Annuities

No fixed annuity category had a more topsy-turvy year than Indexed annuities, which bounced back in the fourth quarter as sales rose 5 percent to $14.7 billion compared with the year-ago period, LIMRA reported.

Despite a slow start, fixed indexed annuity (FIA) sales gathered steam and the segment’s fortunes rose further still when regulators announced that the fiduciary rule would not be fully implemented until July 1, 2019.

Then came the third-quarter FIA sales collapse.

By the time the final numbers were in and double-checked, indexed annuity sales in 2017 fell 5 percent to $57.6 billion compared with record sales in 2016.

“That’s a very positive sign there, but because of the third quarter and the start of year, it’s the first time in a decade that overall indexed sales have dropped – but it’s promising to see those at $15 billion,” Giesing said.

“We’re back to normal as manufactures know what the playing field looks like – temporarily,” he added.

About 60 percent of all FIAs are sold through independent marketing organizations who continue to seek more clarity about their status under the fiduciary rule.

Sales of FIAs in the independent channel were down 10 percent in 2017 compared to 2016.

The picture for 2018 is much clearer and industry sales are expected to rebound, “potentially close to near the record sales we saw in 2016,” Giesing said.

For the time being, distributors have a clear vision for 2018 “but beyond that it’s a bit cloudy,” Giesing said.

Fixed Annuities

Fixed annuity sales in 2017 dropped 8 percent to $107.9 billion, but despite that drop, it is the first time that fixed annuity sales have crested the $100 billion mark for three years in a row, according to the LIMRA data.

Many fixed annuities are interest rate sensitive and rising interest rates should be drawing money to these products, but 2017 didn’t quite pan out that way.

Fourth-quarter sales of fixed-rate deferred annuities fell 4 percent to $7.4 billion compared to the year-ago period, LIMRA reported.

2017 sales of fixed-rate deferred annuities fell 12 percent to $34.2 billion compared to 2016, LIMRA said.

Interest rates for shorter term securities like money market funds and CDs were rising faster than rates for longer-duration products such as fixed-rate deferred annuities, Giesing said.

Investors, reading headlines about the Federal Reserve looking at raising rates three times in 2018, on top of rate hikes in 2017, felt they’d rather put their money to work in a three-month or six-month CD and then reinvest at progressively higher rates.

Why tie up capital in a product with a five-year duration?

“Sales of these products generally align with the 10-year treasury rate yet that didn’t occur again this quarter,” Giesing said. “People just seem to be looking for shorter-term investments anticipating increases in interest rates in 2018.”

Rising rates are generally good for savers and for fixed annuities, but people are also tempted to “time the market” under the expectation that the interest rate environment will be better tomorrow than it is today, he said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].