Are FIAs Filling the Variable Annuity Void?

Although variable annuities still outsell their fixed annuity cousins by the tens of billions of dollars, the shift away from variable annuities is noticeable. That shift is expected to continue with the release of new rules by the Department of Labor, according to two annuity industry experts.

One of the biggest beneficiaries of the DOL’s fiduciary rule appears to be fixed indexed annuities, which booked record fourth quarter gains and sales of more than $53 billion last year, according to Wink’s Sales & Market Report.

“Indexed annuities will grow exponentially due to the DOL rule because variable annuities are the naughty stepchild in the eyes of the DOL regulators,” said Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink Inc.

DOL behavior toward variable annuities is “discriminatory,” she said.  Variable annuities have been dealing with product development and sales challenges since the 2008 financial crisis, and as a result, life and annuity carriers have been wondering what the future for variable annuities holds.

“The answer is the FIA,” Moore said.

FIA sales last year were the hottest they’ve ever been, but are recent sales a harbinger of still yet more growth? And will that growth be enough to anoint FIAs the new superstars of the fixed annuity world — with words of thanks to DOL regulators?

Variable annuities still outsell fixed annuities so it's not like the variable annuity market is going away tomorrow. In addition, the variable annuity industry is fighting hard to retain exemptions that the DOL would like to remove.

Sales of variable annuities in 2015 dropped 5 percent to $133 billion from 2014. Fixed annuities saw 2015 sales rise to $103.7 billion, a 7 percent increase over 2014, according to data published by LIMRA Secure Retirement Institute.

Variable annuities aren’t going away anytime soon, but it’s fair to ask if the market is seeing a structural — and perhaps permanent — shift away from variable annuities to alternatives dwelling on the fixed side of aisle.

Todd Giesing, assistant research director at LIMRA SRI, said this week that the market is “starting to see some market share changes,” and that variable annuity sales, which once accounted for as much as 60 percent to 65 percent of all annuity sales, have lost ground.

By the end of the fourth quarter last year, the sales ratio between variable and fixed annuities had dropped closer to 50-50, with variable annuity sales of $31.7 billion and fixed annuity sales of $29.7 billion, LIMRA data reveal.

Of the $29.7 billion in fixed annuity sales in the fourth quarter, FIAs contributed $16.1 billion, data show.

Early expectations for 2016, due in part to the horrible start of the year for equity markets, is that 2016 will see variable annuity sales decline further still.

Annuity markets are waiting until the DOL issues its final rule — expected shortly — regarding the sale of investments into qualified retirement accounts.

If the DOL’s final rule remains little changed from the one proposed last spring, the variable annuity market is going to be in for a very long year indeed.

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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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 [email protected].