Annuity Sales See Historic Drop In 3Q

Third-quarter annuity sales were down to at least a 15-year low and industry analysts are struggling to understand why.

Overall fixed and variable annuity sales dropped 13 percent to $46.8 billion compared with the year-ago period, LIMRA reported Wednesday.

“This is the first time total annuity sales have fallen below the $50 billion mark in 15 years,” said LIMRA CEO Robert A. Kerzner, in an industry briefing this month. “This is also the sixth consecutive quarter of decline in overall annuity sales.”

In a separate report published last week, Wink’s Sales & Market Report said third quarter non-variable deferred annuity sales dropped 11.1 percent to $20.2 billion compared to the year-ago period.

According to Wink, Third-quarter fixed indexed annuity sales fell 11 percent to $12.7 billion compared with the year-ago quarter, and traditional fixed annuities with a one-year guaranteed fixed rate fell 36 percent to $810 million compared to the year-ago period.

The dive in annuity sales in the midst of a robust equity market and at a time when 10-year Treasury yields are higher than they were last year left some industry experts stumped for answers.

“The S&P was up 4.5 percent, yet we’re just not seeing any positive impact this normally would have had on annuity sales,” Kerzner said.

Higher Treasury yields would typically have boosted fixed annuity sales, but "fixed sales did not see the bump that we might otherwise have expected,” Kerzner said.

Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink, said narrowing spreads between fixed annuities and certificates of deposits helped draw money to bank products and away from annuities. Spreads between fixed annuities and CD rates was 1.20 percent in favor of fixed annuities in the second quarter 2017, but now it is only 0.59 percent.

“That’s a sizeable difference,” she said.

Last year, when fixed annuities delivered record sales, the spread was 1.46 percent in favor of the fixed annuity over CDs, Moore said.

The market might start to recover next year. LIMRA estimated sales of indexed annuities in 2018 to rise by 5 percent to 10 percent, and sales of income annuities are also forecast to grow by 5 percent to 10 percent.

Variable Annuities

Third-quarter variable annuity sales fell 16 percent to $21.8 billion compared to the year-ago period, the 15th consecutive quarter of variable annuity sales declines, LIMRA reported.

Variable annuity sales are now at their lowest level in 20 years, Kerzner said.

Year-to-date variable annuity sales dropped 11 percent to $70.9 billion, continuing a trend that had been in motion before the June 9 implementation date of the Department of Labor’s fiduciary rule, which was widely seen as a drag on VA sales.

The fiduciary rule, key elements of which have been delayed until July 1, 2019, might revive VA sales.

“The question now is will the delay reinvigorate the market,” Kerzner said. “Or will some of the new products gain traction.”

Bright spots in the VA segment included sales of buffered VAs, which rose 15 percent to $1.7 billion compared with the year-ago period, LIMRA reported.

Sales of fee-based VAs rose 52 percent to $550 million compared with the year-ago quarter, but fee-based VAs represent only 2.5 percent of total VA sales.

Individual VA sales, which were forecast to drop between 10 and 15 percent this year over 2016 is likely, he said.

Indexed Annuities

While overall fixed indexed annuity sales fell 9 percent to $13.7 billion, sales of fee-based indexed annuities were up, estimated at $48 million compared with only $2.2 million in the year-ago period, LIMRA reported.

But without a change in regulation mandating the sale of fee-based products, growth is likely to be hindered in favor of traditional commission-based sales.

“With 60 percent of indexed sales coming from independent agents, we aren’t expecting to see significant growth there unless regulations require that (fee-based) structure,” Kerzner said.

FIA sales for 2017 are expected to fall nearly 10 percent,” Kerzner said.

Fixed, Income Annuities Face a 'Tough Market' Also

While the benchmark lending rate has gone up several times over the past 12 months, interest rates remain historically low and that has made it difficult for other fixed annuity lines.

"With fixed annuities, interest rates drive sales and when rates are poor fixed annuities sales pull back and rates are still not good," Moore said.

Third-quarter sales of fixed rate deferred annuities dropped 14 percent to $7.3 billion compared to the year-ago period, LIMRA reported.

Income annuities also suffered.

Third quarter sales of single premium immediate annuities (SPIA) fell 9 percent to $2 billion compared to the year-ago period.

Deferred income annuity (DIA) sales in the third quarter fell 14 percent to $520 million compared with the year-ago third quarter, LIMRA reported.

“It’s just a tough market for income annuities right now,” Kerzner said.

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

© Entire contents copyright 2017 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

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].