Indexed Annuity Sales Could See First Decline In A Decade, LIMRA Predicts

Sales of fixed indexed annuities (FIAs) are expected to be hit the hardest as new regulations and uncertainty among distributors will dampen new sales of individual annuities in 2017. LIMRA's forecast is for sales of all U.S. individual annuities to drop between 5 percent and 10 percent in 2017. In particular, indexed annuity sales are expected to see their first sales decline in a decade.

Total U.S. annuity sales in 2016 were $222 billion.

Overall sales declines are expected to moderate in 2018, dropping an estimated 5 percent from year-end 2017, according to LIMRA.

Nervousness surrounding the Department of Labor’s fiduciary rule has counteracted any benefit that rising interest rates would have had on the annuity market’s biggest segments, said Todd Giesing, assistant research director, LIMRA Secure Retirement Institute.

A shift toward annuities without income riders appears to be dragging down annuity sales as well.

One annuity segment is projected to benefit, however.

Sales of fixed-rate deferred annuities are projected to rise by as much as 5 percent this year and by another 15 percent to 20 percent in 2018, LIMRA SRI reported. Fixed-rate deferred annuity sales rose 25 percent last year to $39 billion.

Policymakers have said they would not hesitate to raise interest rates again this year as unemployment falls and the economy revives.

The Federal Reserve raised the short-term benchmark lending rate a quarter-percent in March, after raising the benchmark a quarter percent in December.

Forecast Sees FIA Sales Hit Hardest

Fixed indexed annuities (FIAs) have suffered from the fiduciary rule's upheaval to independent agents and distributors. The FIA market will be particularly hard hit this year and next, LIMRA SRI’s forecast found.

FIA sales are projected to decline in 2017 between 5 percent and 10 percent over last year. They are expected to soften even further than that in 2018 -  between 15 percent and 20 percent.

FIA sales in 2016 rose 12 percent  over the previous year to hit a record $61 billion.

If the forecast for 2017 holds, it would be the first drop in FIA sales in a decade, said Giesing.

“There’s obviously a lot of potential disruption,” said Giesing.

For years, FIAs have represented one of the best-selling segments of the fixed annuity market and about 60 percent of all FIA sales are conducted through independent agents.

The fiduciary rule, which raises standards of investment advice into retirement accounts, will will be applied on June 9, but lightly and with a review before the full application of the rule on Jan. 1.

A host of exemptions will give distributors some breathing room until the end of the year. But softening sales are a clear indication that some insurers, agents and distributors have opted for a wait-and-see approach.

“While we typically see a seasonal decline in the first quarter, we suspect there are some companies re-evaluating their product mix in anticipation of the DOL rule,” Giesing said.

“Unless there is a change in the DOL fiduciary rule rollout, we are anticipating indexed sales in 2017 to decline for the first time in a decade.”

FIA sales fell 13 percent to $13.6 billion in the first quarter compared with the year-ago quarter, LIMRA reported last week.

“It is entirely possible that 2017 will not be a record-setting year for indexed annuity sales,” Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink Inc., said earlier this year.

Wink’s is expected to report first quarter data shortly.

Variable Annuities to Also Suffer

Variable annuity sales, which dropped 21 percent to $105 billion last year, are expected to fall an additional10 percent to 15 percent in 2017, LIMRA SRI reported.

And LIMRA SRI predicts the sour news will continue into 2018. Variable annuity sales are expected to drop further still by another 10 percent to 15 percent from year-end 2017.

If variable annuity sales drop below $100 billion in 2017, it would be the first such decline since 1998, LIMRA SRI said.

Variable annuity sales had been in decline for several years as insurers cut back on guaranteed living benefits and “managed down” their exposures. The fiduciary rule only accelerated the decline in variable annuity sales.

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

Living benefit riders keep insurance companies on the hook for long-term payouts and raise an insurer’s liability exposures far into the future.

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.

Sales of index variable annuities, also known as structured variable annuities, rose in the first quarter, LIMRA reported. These annuities don't come with benefit riders.

Income annuities, which represent a much smaller segment of the fixed annuity world, rose 2 percent to $12 billion last year.

Sales of income annuities, however, are forecast to drop between 5 percent and 10 percent in 2017, before rebounding by 10 percent to 15 percent in 2018, LIMRA SRI’s forecast also found.

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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