FIA Riders Reach Inflection Point

With annuity sales forecast to drop across the board by up to 10 percent this year, pickings for advisors may be rather slim indeed.

But an important shift away from annuities with guaranteed living benefits (GLBs) signals that advisors are focused on accumulation and away from income, a least for the time being, a market expert said Monday.

In the first quarter, annuity companies sold $6.7 billion worth of fixed indexed annuities (FIAs) without GLBs. This compares with $6.5 billion worth of FIAs sold with GLBs, said Todd Giesing, assistant research director of LIMRA Secure Retirement Institute.

“We have absolutely reached an inflection point,” Giesing told InsuranceNewsNet. “This is the first time it’s crossed over.”

Nine out of the top 10 insurers sold fewer FIAs with GLBs in the first quarter than in the fourth quarter, he said.

FIA sales in 2016 rose 12 percent to a record $61 billion.

Sales of FIAs are projected to decline by 5 percent to 10 percent in 2017 over last year, and then expected to soften even further — by between 15 percent and 20 percent in 2018 over 2017, LIMRA SRI reported last week.

“Sales with a guaranteed living benefit continued to decline at a much faster rate than products without,” Giesing said.

GLBs, also known as income riders, were once generous standard fare on FIAs. But sales of these benefits have dropped off as advisors and consumers pivot toward accumulation and away from income as implementation of the fiduciary rule approaches, Giesing said.

And the shift away from income isn’t limited to GLBs attached to FIAs.

VAs Almost at Inflection Point

“We’re seeing similar patterns on variable annuity sales,” Giesing said. “It’s not crossed over yet but it’s an almost 50-50 split,” between the number of variable annuities sold with and without income riders.

Variable annuity sales, which dropped 21 percent to $105 billion last year, are expected to fall a further 10 percent to 15 percent in 2017, LIMRA SRI reported.

Income riders come at an additional cost and represent a long-term commitment by the insurer to the contract holder.

For years, as interest rates fell, insurers cut back on the GLBs and “managed down” their exposures, “de-risking” their variable annuities.

The Department of Labor’s fiduciary rule only appears to have hastened that trend as agents and distributors ease off on long-term commitments in the face of the DOL rules, which raise the standard of investment advice into retirement accounts.

“There’s a ton of uncertainty now from the distributor and advisor perspective,” Giesing said. “There’s June 9, and then the transition window.”

The window closes on Dec. 31, after while the entire rule goes into effect.

About two-thirds of all variable annuities come with some sort of guaranteed living benefit.  Variable annuities hold about $1.8 trillion in assets, Morningstar reported earlier this year.

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.