Annuity Sales in Sharp Decline, Report Finds

Annuity sales in the third quarter of 2016 totaled $51.3 billion, an 8.2 percent decline from sales of $55.9 billion during the second quarter of 2016, according to data reported by Beacon Research and Morningstar.

The sales figures represented a 12.3 percent decline from $58.5 billion in the third quarter of 2015,

According to Beacon Research, fixed annuity sales during the third quarter of 2016 reached $26 billion, an 11.9 percent decline from sales of $29.5 billion during the second quarter of 2016 and a slight 1.9 percent decline from sales of $26.5 billion during the third quarter of 2015.

Variable annuity total sales were $25.4 billion in the third quarter of 2016, according to Morningstar. This was a 4 percent decline from sales of $26.4 billion in the prior quarter and a 20.8 percent decline from $32 billion in the third quarter of 2015.

“The results during the third quarter are not surprising given the significant transition that has been occurring across the retirement planning market,” IRI President and CEO Cathy Weatherford said. “However, the recent rise in interest rates may be a positive development for the industry as we move into 2017.

"The 10-year Treasury is now up nearly 100 basis points from summer lows. Provided rates can continue to rise gradually, we may see fixed annuities offer higher crediting rates and more generous payouts on both fixed and variable products offering lifetime income. This, combined with ongoing favorable demographics, should lead to strong demand for lifetime income strategies in the years ahead.”

Two other recent reports reached differing results on fixed annuity sales.

Third-quarter sales of traditional fixed annuities dropped by as much as 59 percent to $1.2 billion from the year-ago period, according to Wink’s Sales & Market Report.

LIMRA Secure Retirement Institute announced last month that third-quarter sales of fixed annuities rose only 1 percent to $27.7 billion compared with the year-ago period.

According to Beacon Research, though fixed annuity sales were down for the quarter, year-to-date fixed annuity sales are up 21.8 percent compared to 2015. Sales of all fixed annuity product categories also are up year-to-date.

Fixed indexed annuity sales remained strong during the third quarter of 2016, reaching $15 billion. While this represents a 6.8 percent decline from near-record sales of $16.1 billion in the previous quarter, it is a 4.2 percent increase from $14.4 billion during the third quarter of 2015. As a percentage of sales, fixed indexed annuities now make up 57.6 percent of the fixed annuity market.

For the entire fixed annuity market, there were approximately $15 billion in qualified sales and $11 billion in non-qualified sales during the third quarter of 2016.

“On a year-to-date basis, the fixed annuity market sold a record-breaking $85.5 billion in the first three quarters of 2016,” Beacon Research CEO Jeremy Alexander said.

“Indexed annuities continue to lead the increase with $46.2 billion of year-to-date sales, a 20 percent increase from $38.5 billion during the same period of 2015. In addition, the fixed income market, which includes immediate annuities and DIAs, experienced record-breaking, year-to-date sales of $9.9 billion, a 12 percent increase from 2015.

"With annuity crediting rates and caps rising, the conditions continue to improve for the fixed annuity market. If sales only remain flat in Q4, 2016 will shatter the annual fixed annuity sales record of $106.7 billion set in 2008.”

According to Morningstar, variable annuity net assets increased 2.2 percent to $1.92 trillion during the third quarter of 2016. Variable annuity net assets have now risen for four consecutive quarters, increasing 4.3 percent during that period. Within the variable annuity market, there were $17.3 billion in qualified sales and $8.1 billion in non-qualified sales during the third quarter of 2016.

“Assets continue to increase even though we see another quarter with declining sales, a recent trend we have seen with both data points,” said Kevin Loffredi, senior product manager at Morningstar.

“As we would expect, net flows continue to point more negative than we have ever seen, down $25 billion year to date. This trend is likely a new norm, due to the large mass of existing annuity business that is simply being withdrawn or paid out and less likely to be replaced with another annuity.”