Annuity Sales Rise in First Quarter Despite Equities’ Drag on VA Products, LIMRA Reports
May 20, 2016 by Dennis Gorski
WINDSOR, Conn. – The sour stock market in the first months of this year took a toll on variable annuity sales while boosting fixed products, according to a new report from LIMRA’s Secure Retirement Institute.
Though total annuity sales for the first quarter jumped 9% to $58.9 billion, LIMRA said variable annuity sales fell 18% to $26.6 billion — their lowest level in 15 years. The declines were industrywide, with 19 of the top 20 VA manufacturers reporting decreases, the survey said.
“The start of the year saw tremendous volatility, with steep declines in the equity markets, falling nearly 10% within the first three weeks,” said Todd Giesing, assistant research director of the institute, in a statement. “While it did rebound into positive territory by the end of the quarter, the substantial volatility hurt VA sales and helped fixed products as people sought out safety being offered in indexed and fixed-rate deferred products.”
In the first quarter, sales of fixed annuities jumped 48% to $32.3 billion, with all retail fixed products experiencing double-digit growth compared with the prior year, LIMRA said.
Indexed annuity sales jumped 35% to $15.7 billion, and every top-10 writer reported an increase, the survey said. Indexed annuity sales have experienced eight consecutive years of positive growth, and LIMRA said it sees continued strong growth for these products throughout 2016.
“We believe annuity manufacturers and advisers started to focus on indexed annuities in anticipation of the final Department of Labor fiduciary rule, not knowing that indexed (products) would be pulled under the Best Interest Contract Exemption in the final rule,” Giesing said.
BICE, as it is called, governs how financial advisers are compensated under the fiduciary rule (Best’s News Service, April 11, 2016). Fixed indexed annuities weren’t included in the DOL’s draft rule, but are now part of the final regulations.
Given current market conditions, the institute projects overall fixed sales to improve 15% to 20% in 2016. However, with the implementation of the DOL fiduciary rule in April 2017, LIMRA estimates fixed annuity sales to drop 5% to 10%.
The institute is forecasting VA sales will drop 15% to 20% in 2016 and another 25% to 30% in 2017, when the fiduciary rule goes into effect.
This is the third consecutive quarter of positive overall growth for the annuities sector, the survey said. Last year, the sector rang up $236.6 billion in overall sales — $133 billion in variable annuities and $103.6 billion in fixed annuities, according to the institute’s year-end report.
(By Dennis Gorski, managing editor-online, BestWeek: Dennis.Gorski@ambest.com)
