Income Riders Rescue Fixed Annuities

A flood of new income riders attached to fixed annuities has helped fuel a boom and powered the product segment to record sales of $117.4 billion last year, annuity product experts and analysts said this week.

The income riders have suddenly made plain vanilla fixed annuities newly attractive to agents looking to sell the product under the Department of Labor’s fiduciary rule.

Selling fixed annuities under the DOL’s Prohibited Transaction Exemption 84-24 is less onerous for agents than selling under the Best Interest Contract Exemption. The onerous BICE is require to sell fixed indexed annuities (FIA) using retirement dollars.

“What they (insurers) want to do is to help all those agents in the independent channel who were selling FIAs to help them sell fixed annuities,” said Jeremy Alexander, CEO of Beacon Research, a consulting firm that tracks annuity sales.

Income riders first appeared on variable annuities years ago. Riders then appeared on FIAs and were a major selling point for insurance agents, he said.

Fixed Annuities Looking Like Indexed Annuities?

But the fiduciary rule has dampened agent enthusiasm for FIAs, despite the product line turning in a record year of sales in 2016. Insurers want to make fixed annuities look like indexed annuities as much as possible, market analysts said.

Income riders will help “the transition for those salespeople that will no longer be doing any indexed annuity business because of the BIC exemption,” said Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink.

Moore publishes of the indexed life and annuity industry tracker Wink’s Sales & Market Report.

In 2017 alone, several annuity companies have launched income riders on a traditional fixed annuity, according to Wink.

The companies are American Equity Investment Life Holding, Life Insurance Company of the Southwest, Midland National Life Insurance Company and North American Company for Life and Health.

New riders are “designed for independent insurance agents looking to sell under prohibited transaction 84-24 of the DOL fiduciary rule,” said Ron Grensteiner, president of American Equity Investment Life Insurance in a February conference call.

“Due to the competitive guaranteed income, we think they will be accepted by a broader group of agents,” Grensteiner said.

So it seems, as fixed annuity sales roar ahead.

More Features for the Fixed Indexed Side

A delay issued by the Trump administration has moved back the applicability date of the fiduciary rule from April 10 to June 9, but insurance companies aren’t waiting to see if the fiduciary rule ultimately lives or dies.

In the second quarter, American Equity will release a new version of its lifetime income benefit rider available for FIA products, Grensteiner said.

American Equity was the No. 2 seller of FIAs in the U.S. market last year with $5.7 billion in sales. The company is planning to add optional market-value adjustment features allowing FIA policyholders to receive higher rates, Grensteiner said.

“We have resisted having MVAs in the past on our fixed indexed annuities, but have found ourselves to be outliers by not having them,” he said.

FIA sales rose 12 percent to $61 billion in 2016 compared to 2015, LIMRA Secure Retirement Institute reported in February.

Record Sales of Fixed Annuities

Last year, fixed annuity sales came to $117.4 billion while sales of their variable annuity cousins came in at $104.7 billion, LIMRA reported.

It is the “first time in a long time” that variable annuities have dropped below 50 percent in annuity market share, said Todd Giesing, assistant research director for industry tracker LIMRA Secure Retirement Institute in Windsor, Conn.

Quoting activity for income annuities — single premium immediate annuities and deferred income annuities — reached a record in the December 2016 to February 2017 period, said Gary Baker, president of the quoting platform Cannex USA.

In the three-month period ending in February, advisor quote activity increased on average by 18 percent on average over the past three years. This year, quoting activity rose 28 percent over the three-month period, he said.

Industry analysts estimate the U.S. annuity market at $220 billion, with money flowing between the fixed annuity and the variable annuity side.

Recently the flows have favored the fixed annuity side due to the regulatory changes and higher interest rates.

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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