Lincoln: Variable Annuity Sales Close to Bottoming Out

The variable annuity market, which saw sales shrink by 21 percent last year over the previous year, is close to bottoming out, the top executive of one of the nation’s largest variable annuity sellers said Thursday.

The disappearance of defined benefit plans means more people are responsible for funding their own retirement. In that light, the guarantee of lifetime income will hold strong appeal for consumers, said Dennis R. Glass, president and CEO of Lincoln Financial.

The Department of Labor’s fiduciary rule, which takes effect next June 9, requires that agents who choose to sell variable annuities do so under a best interest threshold.

But the rule, designed to benefit investors by raising standards for investment advice into retirement – or qualified – accounts, has also created confusion in the minds of distributors, Glass said in a conference call with analysts.

“I think the whole market – candidly both the qualified and the nonqualified business – is being affected by the uncertainty created by this rule,” Glass said.

Distribution partners are “waiting for certainty so they can formalize what their practices and policies are going to be, so I'm hopeful that we're going to get to that certainty sooner rather than later and I think that will help annuity sales overall,” he said.

Annuity Deposits Shrink

First-quarter operating revenues generated by the annuity segment rose 2.1 percent to $1 billion compared with the year-ago period, Lincoln reported. Annuity deposits dipped 14 percent to $2 billion compared with the year-ago period, the company reported.

Lincoln Financial, the No. 6 seller of variable annuities in 2016, sold $6.6 billion worth of new variable annuity contracts last year, compared with $11.2 billion worth in 2015, according to the mutual fund tracker Morningstar.

Industrywide, new sales of variable annuities fell 21.4 percent to $101 billion in 2016 compared to 2015, Morningstar reported earlier this year.

“Annuities are sold and not bought, that’s true, but they need to be nurtured at the broker-dealer and if the home office isn't encouraging reps to nurture them and tell people how to use them, then interest in the product will wane,” said Keven Loffredi, Morningstar’s senior product manager, in a March interview with InsuranceNewsNet.

In four years, new variable annuity sales have shrunk every year, from $141.2 billion in 2013 to $101 billion in 2016, Morningstar data show.

Lincoln Beats the Street

Despite falling variable annuity sales, Lincoln National on Wednesday delivered first-quarter profit of $435 million, the Associated Press reported.

The company said it had profit of $1.89 per share. Earnings, adjusted for investment costs, were $1.92 per share.

The results exceeded expectations. The average estimate of seven analysts surveyed by Zacks Investment Research was for earnings of $1.62 per share.

The insurance and retirement business posted revenue of $3.5 billion in the period.

Lincoln National shares have decreased slightly since the beginning of the year, while the Standard & Poor's 500 index has risen nearly 7 percent. However, the company's $67.13 share (as of May 5) price represents a 53 percent increase in the last 12 months.

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].