Fee-Based Annuity Sales, Still Low, Rise in 2017

Fee-based variable and indexed annuities, considered critical to attracting registered investment advisors (RIA), finished 2017 with sales of $2.3 billion, or about 3.1 percent of all variable and indexed annuity sales, data show.

Fee-based variable annuity (VA) sales in 2017 reached $2.2 billion, but that was still only about 2.7 percent of all VA sales last year, according to preliminary data released by LIMRA Secure Retirement Institute.

Fee-based indexed annuities finished with sales of $138 million, just 0.4 percent of all indexed annuity sales last year.

“While sales of these products have grown significantly, they are still a relatively small percent of the market,” said LIMRA CEO Robert A. Kerzner, in a quarterly briefing to members.

Quarterly sales of fee-based VAs in 2017, starting with the first quarter, were $460 million, $570 million, $550 million and $660 million, LIMRA SRI reported.

Quarterly sales of fee-based indexed annuities, starting with the first quarter, were $10.3 million, $23 million, $48 million and $57 million.

Fee-based VA sales represented between 1 and 1.5 percent of all VA sales in 2016, according to LIMRA estimates. Fee-based FIA sales made up .02 percent of the $58 billion indexed annuities sold in 2016, LIMRA estimates.

Market Traction Subject of Debate

There seems to be some debate around how much traction fee-based annuities can generate in the market.

“Similar to fee-based VAs, fee-based FIAs are not getting traction,” Kerzner said. “With 60 percent of indexed sales coming from independent agents, we don't expect to see significant growth here.”

But insurance company managers report that RIAs who have traditionally shied away from annuities are showing a lot more interest in fee-based products.

“RIAs are now talking about annuities,” said Jason Wellmann, senior vice president of Life Insurance Sales for Allianz Life.

Improvements in reporting capabilities have shed more transparency on annuities and that has only served to reassure RIAs who operate under a best-interest standard and must accept only “reasonable” compensation.

As interest rates rise, RIAs should be giving a serious look at fee-based annuities as client bond portfolios lose value, according to some insurance company managers.

When rates rise, bonds drop in value because fixed income buyers prefer investing in new bonds with higher yields.

2018 Forecast: VAs Drop, FIAs Rise

Insurers have released several new fee-based variable and indexed annuities over the past 18 months to appeal to RIAs and the increase in sales of fee-based products should offer some encouragement as the annuity industry struggles to boost sales.

Overall annuity sales in 2017 fell 8 percent to $203.5 billion over 2016.

Low interest rates and the uncertainty around the partial implementation of the Department of Labor’s fiduciary rule were to blame, but market analysts said the annuity market is gradually moving on from the DOL rule.

VA sales, which fell 9 percent last year to $95.6 billion compared to 2016, are expected to be flat to down 1 percent to 5 percent in 2018.

FIA sales, which fell 5 percent last year to $57.6 billion, are forecast to rise by 5 to 10 percent in 2018, Kerzner said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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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 cyril.tuohy@innfeedback.com.