Annuities Will Retain Strong Product Sales, Analysts Predict

Although some annuity sales numbers are fluctuating wildly, analysts say the long-term prognosis for annuity products remains very strong.

Like power changing hands from one political party to another, the money in the annuity world sloshes about between the variable and fixed buckets and back again, analysts say. Some numbers look bad, but can be misleading in the big picture.

“People keep saying there’s a big downturn, a big downturn, a big downturn, but I don’t see it,” said Jeremy Alexander, president of Beacon Research, a provider of annuity data. “I think it’s a strong market.”

The tax-deferred nature of annuities renders them “sticky,” like money staying within the family, so it’s not as if banking products are stealing annuities’ thunder, he explained.

Consternation around the lowest first-half sales numbers in 16 years doesn’t seem to bother Alexander, who notes that fixed and variable sales collectively have remained in the $200 billion to $250 billion range for many years.

“In the long term, it will not really matter, but it does cause turbulence in how some folks respond,” said Tamiko Toland, product research manager for Cannex, an annuity pricing information exchange, and a long-time observer of the variable market.

Besides, insurance company executives continually remind shareholders that demographic trends favor the annuity marketplace.

Americans live longer than they used to and tens of millions of them find themselves in the hunt for guaranteed income to make up for disappearing pensions, underfunded retirement accounts and the jitters surrounding the survival of Social Security.

Fixed Annuities Take the Lead

These days, fixed annuities are making a meal of their variable annuity cousins as they steadily eat into the VA market share.

But while the balance of power has swung in favor of fixed annuities, it represents natural oscillation within an annuity market that has maintained overall sales of between $220 and $240 billion over the past five years.

Last year, for the first time in a long time, fixed annuities ($117 billion) outsold VAs ($104 billion), according to LIMRA Secure Retirement Institute. That represented a record year for fixed annuities.

This year, fixed annuities appear to be keeping a similar pace, according to first-half numbers.

Fixed annuity sales came to $56.7 billion in the first half, a 54 percent share, while variable annuities sold $49.1 billion, for a 46 percent share.

What a difference a half-decade makes.

In 2012, fixed annuity sales finished the year with $72.3 billion in sales, but variable annuities more than doubled that figure with $147.2 billion in sales.

Volatility, Yes. Death Spiral? No

Despite the long-term stability of the annuity market, there’s been plenty of short-term volatility, data show.

And there are no shortage of reasons: new fiduciary regulations, rising interest rates, investment restrictions in the variable annuity space, a block of fixed-rate deferred annuities coming due in the first half of last year, and insurers “managing down” their variable annuity portfolios.

The upshot has sent the annuity market sideways as subsegments rise one quarter and fall the next, or as niches rise even as an overall annuity segment shrinks.

“We’ve had a lot of volatility around expectations (from) DOL. When you look at the movement and take a step back, that’s what it is,” Toland said.

One of the fixed annuity segments on the receiving end of that volatility has been indexed products.

Indexed annuities finished last year with a record $61 billion in sales, a 12 percent increase from 2015. This year, those products saw first-quarter sales drop 13 percent to $14 billion before rebounding with nearly $16 billion in second-quarter sales.

In the spring, after the release of first-quarter sales, analysts doubted whether 2017 would turn into a record year for indexed annuities.

But in the second half it’s “game-on” for the indexed segment, said Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink Inc., publisher of the life and annuity industry data tracker Wink’s Sales & Market Report.

In the variable annuity market, hybrid or buffered VA sales soared 36 percent to $1.8 billion in the second quarter. But the overall variable annuity market shrank 8 percent to $25 billion compared with the year-ago period.

Last September, the annuity industry was gearing up to implement fiduciary rule, resigned to the fact that a Hillary Clinton White House would push to further regulate the financial services sector.

Instead, the industry awoke to find a new president calling for a moratorium on Obama-era financial regulation, and now implementation of major parts of the fiduciary rule aren’t expected until July 1, 2019.

No wonder the annuity market is suffering from a severe case of whiplash.

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].