The expected 18-month delay in the Department of Labor fiduciary rule will drive a healthy 2018 annuity sales rebound, analysts say.
New sales of individual U.S. fixed and variable annuities are forecast to grow 5 percent in 2018, LIMRA analysts said. In the spring, before the delay was announced, LIMRA forecast up to a 15 percent drop in fixed and variable sales.
Companies sold $222.1 billion worth of annuities in 2016 and analysts predict sales will drop 5 percent to 10 percent this year, LIMRA reported, mainly due to the DOL rule uncertainty. In the coming weeks, the DOL is expected to officially delay the fiduciary rule until July 1, 2019.
“That’s great news for some of the fixed annuity carriers out there,” said Todd Giesing, director, Annuity Research for LIMRA.
Parts of the fiduciary rule went into effect in June requiring only "reasonable compensation" among other impartial conduct standards. Still, the legal liability is part of the second phase of the rule. The delay gives the Trump administration time to remove the class action right to sue from the rule altogether, analysts say.
With that in mind, distributors face a simpler, more defined annuity sales process than if the entire rule had gone into effect on Jan. 1, 2018, as originally planned.
The delay shifted industry 2018 forecasts as a result.
|Annuity Sales Forecast 2018|
issued spring 2017
issued fall 2017
|variable annuity||Down 10-15%||Down 0-5%|
|Total||Down 0-5%||Up 5-10%|
|Indexed||Down 15-20%||Up 5-10%|
|Fixed-rate deferred||Up 10-15%||Up 0-5%|
|Income||Down 0-5%||Up 5-10%|
|All annuities||Down 0-5%||Up 0-5%|
Drop in VA Sales Forecast Narrows
Variable annuity sales are now forecast to dip no more than 5 percent in 2018, an improvement over the spring when 2018 variable annuity sales were forecast to drop an estimated 10 to 15 percent from year-end 2017.
New sales of variable annuities this year are expected to dip below the $100 billion mark for the first time since 1998, Giesing said.
Variable annuity sales dropped 21 percent to $104.7 billion in 2016 from 2015. Variable and fixed indexed annuities became more difficult to sell under the fiduciary rule, so the delay is good news for those product lines.
Lower variable annuity sales are also due to companies managing their annuity business mix and their mix of products sold with and without guaranteed living benefits.
“They are managing their business and the risk they take on in their new sales and we see that has an impact on our forecast,” he said.
Still, the pressure on the variable annuity market has eased and some segments of the variable annuity market have even shown robust growth this year.
Forecast for Fixed Annuities Turns Positive
New fixed annuity sales are expected to increase between 5 and 10 percent. Previous forecasts called for a drop of up to 5 percent, LIMRA reported.
The biggest shift in the forecast came from the fixed indexed annuity (FIA) subsegment, which LIMRA now expects to grow by 5 to 10 percent. Last spring's forecast called for 15 to 20 percent decline in 2018 FIA sales.
Thanks to the delay, FIA distributors can sell their products without worrying about meeting the requirements of the best interest contract exemption until July 1, 2019.
That could mean record 2018 FIA sales in the range of $60 billion or more, Giesing said.
After a record $61 billion in sales last year, FIA sales this year could shrink by 5 to 10 percent after a lackluster first quarter, he said.
Other FIA market experts say FIAs could still show strong 2017 sales thanks to the rule delay. Key insurance marketing organizations suddenly find themselves with more breathing room to help independent advisors face the challenges imposed by a fiduciary standard.
Income, Fixed-Rate Deferred Annuities Forecasts Revised Downward
Not all annuities projections were revised upward.
Sales of fixed-rate deferred annuities are projected to rise by 5 percent in 2018. LIMRA's original forecast had fixed-rate deferred annuities growing by 10 to 15 percent.
In the spring, analysts figured fixed-rate products with guaranteed living benefits provided the “path of least resistance” for money flowing out of the FIA subsegment.
But since the anticipated disruption to FIAs never quite materialized due to the rule delay, flows out of FIAs aren’t what analysts predicted six months ago, Giesing explained.
Similarly, for income annuities, the new forecast is for sales to rise by 5 to 10 percent in 2018. Previously, LIMRA projected new sales of income annuities to rise by 10 to 15 percent.
Fund flows that last spring were forecast to go into income annuities in 2018 dried up as investors stick with FIAs with income riders, or variable annuities.
With a stock market that has gained more than 14 percent since the beginning of this year, it’s hard for income annuities to compete with indexed products – for the moment.
Interest rates have gone up but are still low by historical measures, which makes fixed annuities less attractive than equity-linked annuities.
But LIMRA analysts see rates rising in 2018, which will make fixed annuities more attractive — and perhaps attractive enough to eventually begin drawing pools of money into income and fixed-rate deferred annuities and away from FIAs.
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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