Bottom Falls Out of Fixed Annuity Market in 3Q

Third-quarter sales of traditional fixed annuities took a beating, dropping by as much as 59 percent to $1.2 billion from the year-ago period, according to data released last week.

Retirement investors fled the fixed-annuity market in search of higher yields, said Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink Inc., publisher of Wink’s Sales & Market Report.

Sales of fixed annuities were down nearly 24 percent compared with the second quarter, Wink found. Moore termed third-quarter sales of fixed annuities as “sluggish.”

Among the top sellers of fixed annuities in the third quarter were Jackson National, Athene USA, Reliance Standard, Great American Insurance Group and MetLife.

The top fixed annuity product sold was Forethought Life’s ForeCare fixed annuity, Wink reported.

In a separate announcement, 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.

For the first three quarters of the year ending Oct. 31, fixed annuity sales have increased by 25 percent to $91.5 billion compared to the year-ago period, LIMRA SRI reported.

LIMRA reports quarterly sales on a broader universe of fixed annuity products compared with Wink, which explains the big difference between the two reporting numbers, Moore said.

LIMRA estimates that fixed annuity sales are on track to rise by 15 percent to 20 percent in 2016.

MYGAs: A Silver Lining

There was some good news among third-quarter fixed annuity sales as sales of multiyear guaranteed annuities, or MYGAs, rose 18 percent to $7.2 billion, Wink reported.

Sales of MYGAs, which are often described as a “CD-like annuity” even though they aren’t FDIC-insured, were off by 18 percent compared with the second quarter, Wink reported.

Unlike traditional fixed annuities where interest rates are reset once a year, MYGAs issue a fixed rate of interest over a term of longer than 12 months. That means MYGA investors can invest at, for example, 1.8 percent annually for four or more years.

Compared with the key federal funds interest rates ranging from between 0.25 and 0.50 percent, depositors with conservative investments such as savings accounts, bank CDs and Treasury bonds have very little to cheer about.

Investors prefer MYGAs because they pay substantially more than a CD and the reason they pay higher is because insurers invest the premium differently from how banks would invest the premium, Moore said.

Banks, which have a ready base of depositors in ultra-safe FDIC-insured savings accounts, like MYGAs as they represent income for the banks.

“Banks are driving sales of these products because rates on competing products, such as certificates of deposit, are still hovering at less than 1 percent,” Moore said in a news release. “This is driving sales of these CD-like annuities.”

The No. 1 MYGA insurer in the third quarter was New York Life followed by Security Benefit Life, Midland National Life, American International Group and Athene USA, according to Wink.

Security Benefit’s Life RateTrack 5-Year was the top-selling MYGA in the third quarter, Wink’s reported.

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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