VAs, FIAs Finish Strong In 4Q

WASHINGTON, D.C. – The Insured Retirement Institute (IRI) today announced final fourth quarter sales results for the U.S. annuity industry, based on data reported by Beacon Research and Morningstar, Inc. Industry-wide annuity sales in the fourth quarter of 2017 totaled $48.4 billion, a 9.5 percent increase over sales of $44.2 billion during the third quarter of 2017, and a 0.3% increase from sales of $48.2 billion in the fourth quarter of 2016. For the full year, fixed and variable annuity sales totaled $192.1 billion, down 9.1 percent from 2016 total sales of $211.4 billion.

According to Beacon Research, fixed annuity sales during the fourth quarter of were $24.5 billion, a 5.2 percent increase over third quarter sales of $23.2 billion and a 2.7 percent increase from sales of $23.8 billion during the fourth quarter of 2016. Variable annuity total sales were $23.9 billion in the fourth quarter of 2017, according to Morningstar. This was a 14.2 percent increase from sales of $20.9 billion in the prior quarter, and a 2 percent decline from sales of $24.4 billion in the fourth quarter of 2016.

"Variable and fixed indexed annuities rebounded strongly in the fourth quarter, with variable annuities hitting their high-water mark for the year, as insurers and distributors began to adapt to the changes in transaction processing necessitated by the implemented and pending requirements of the DOL fiduciary rule," said IRI President and CEO Cathy Weatherford. "Sales increasing at a brisk pace in variable and fixed indexed annuities is evidence of the demand that continues to grow among Americans retiring and preparing for retirement, despite the challenges presented by the regulatory environment. With the DOL fiduciary rule now vacated by the 5th Circuit Court of Appeals, we expect sales to continue building on these increases in 2018 as transaction friction abates."

According to Beacon Research, while sales of all fixed annuities fell in the third quarter, fixed indexed sales saw the lowest drop in sales, falling 9.2 percent to $13.6 billion from second quarter sales of $14.9 billion and comprising 59.6 percent of total fixed annuity. For the entire fixed annuity market, there were approximately $12.7 billion in qualified sales and $10.0 billion in non-qualified sales during the third quarter of 2017.

"We continue to be impressed by the strength of the fixed annuity market," said Beacon Research CEO Jeremy Alexander. "Driven in part by increased regulatory pressures, we have seen strong growth into the broker-dealer channels. In 2010, 9% of fixed sales occurred in wirehouses, large/regional broker dealers and independent broker-dealers, as of Q4, 2017, that number is 26%. In addition, fixed indexed annuities now make up almost 60% of all fixed annuity sales, up from 50% just five years ago."

Source: Beacon Research Fixed Annuity Premium Study

Fixed Table 2. Quarterly Market Share by Product Type

Source: Beacon Research Fixed Annuity Premium Study

According to Morningstar, variable annuity net assets rose 1.4 percent to $1.99 trillion during the fourth quarter of 2017, versus third quarter net assets of $1.96 trillion. On a year-over-year basis, assets were up 4.7 percent, from $1.90 trillion at the end of the fourth quarter of 2016, as positive market performance continued to outweigh the impact of negative net flows. Net flow in variable annuities were -$18.2 billion in the fourth quarter. Within the variable annuity market, there were $15.2 billion in qualified sales and $8.7 billion in non-qualified sales during the fourth quarter of 2017. Qualified sales rose 15 percent from third quarter qualified sales of $13.2 billion, while sales of non-qualified variable annuities increased by 12.6 percent from third quarter non-qualified sales of $7.8 billion.

"Variable annuity sales were hit hard in 2017, with disruptions in business processes and uncertainty fueled by the protracted introduction and ambiguity surrounding the DOL fiduciary rule making it more difficult to transact," said John McCarthy, Senior Product Manager at Morningstar. "Yet positive investment returns kept VA assets under management at near-record levels. With the DOL rule now vacated, the industry moves back to more familiar territory when it comes to suitability, and we expect business to start to normalize during the remainder of 2018."

Source: Morningstar, Inc., and Insured Retirement Institute

Source: Morningstar, Inc.

*Total Premium Sales, also called Total Premium Flows, , represents the sum of new sales [all first-time buyers of a contract, including inter- and intra-company exchanges] and additional premiums from existing contract owners.  Net Sales, also called Net Flows, represents Total Premium Sales minus surrenders, withdrawals, inter- and intra-company exchanges, and benefit payments.

**Morningstar estimates net sales based on a calculation methodology used across all investment universes for which Morningstar collects and publishes asset and performance data, including global open end mutual funds, separate accounts, and exchange traded funds.

Source: Morningstar, Inc.