LIMRA’s VA Sales Forecast Swings Positive

You’ve got to hand it to the variable annuity market for engineering a surprising turnaround – so far as the 2018 forecast is concerned.

Only months ago, VA sales were expected to fall by as much as 5 percent this year, but projections now show sales poised to swing positive and rise by 5 percent, according to the latest forecast from LIMRA Secure Retirement Institute.

“The target is off the back with the Department of Labor rule and that had a big impact,” said Todd Giesing, annuity research director for LIMRA Secure Retirement Institute.

New VA product introductions, higher crediting rates for guaranteed living benefit products, a loosening of investment restrictions bodes well for future VA sales this year, Giesing said.

VAs, as well as fixed indexed annuities, benefitted from the demise of the fiduciary rule after the Department of Labor postponed the regulation and it was vacated by the Fifth Circuit Court of Appeals.

On Tuesday, the court rejected an appeal by a trio of states, clearing the way for the rule to be officially killed, perhaps as early as next month.

The rule made it more difficult to sell VAs and indexed annuities and was blamed for the fall in annuity sales last year.

A proposed rule by the Securities and Exchange Commission is seen as more lenient toward insurance sales.

First quarter overall VA sales fell 1 percent to $24.6 billion compared with the year-ago period. It was the 17th consecutive quarter of declines in VA sales, LIMRA SRI reported.

Fixed-Rate Deferred Annuities Also Forecast Winners

The other big gainer was the fixed-rate deferred annuity category, sales of which are expected to grow by 15 to 20 percent this year.

Earlier this year sales of fixed-rate deferred annuities had been projected to grow by only 5 percent, LIMRA SRI reported.

Fixed-rate deferred annuities delay taxes and distributions, often for many years, allowing the investment to accumulate.

Fixed-rate products, which are sensitive to interest rates, benefited from rising 10-year Treasury yields, analysts said.

The Federal Reserve’s decision to raise the benchmark short-term lending rate by a quarter percent in March also helped.

Analysts project still more rate hikes later this year as the economy expands.

Despite the improved forecast, first quarter sales of fixed-rate deferred annuities fell 14 percent to $8.7 billion compared to the year-ago period.

Indexed, Income Annuity Forecast Unchanged

There was no change in the 5-10 percent growth forecast for fixed indexed annuities in 2018, nor was there any change in the 5-10 percent growth forecast for income annuities, LIMRA SRI reported.

The near-certain death of the DOL rule means more clarity around distribution in 2018 and indexed annuity sales could even return to record sales, Giesing said.

Indexed annuity sales reached $61 billion in 2016 but fell 5 percent to $58 billion last year.

Sales in the first quarter – traditionally the weakest quarter for indexed annuity sales – rose 11 percent to $14.5 billion compared to the year-ago period.

It was the second best first quarter performance since 2007, Giesing said.

All individual annuity sales in 2018 are expected to grow by 5-10 percent, up from a previous forecast of 0-5 percent, LIMRA reported.

Overall first quarter annuity sales – fixed and variable – were $51.8 billion, flat compared with the year-ago period, LIMRA reported.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

© Entire contents copyright 2018 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.