Fixed indexed annuities continue their surge with record sales year

Market volatility, a larger market of sellers and a boost among previously uninterested distribution channels has contributed to the growth

Feb 23, 2016 @ 4:42 pm

By Greg Iacurci

+ Zoom

Fixed indexed annuities inked their best-ever sales year in 2015, closing the year with a record sales quarter and continuing a steady rise in popularity in the last several years that's occurred as variable annuity sales have floundered.

Indexed annuity sales totaled $54.5 billion in 2015, a 13% increase from $48.2 billion in 2014, according to the LIMRA Secure Retirement Institute's fourth-quarter U.S. Individual Annuities Sales survey.

The record sales cap off the eighth consecutive year of growth for indexed annuities, which saw $25 billion in sales in 2007.

The fourth quarter of 2015 was also a record quarter for indexed annuities, which notched $16.1 billion in sales, besting the previous record of approximately $14.3 billion set the prior quarter, according to LIMRA.

The surge in popularity of indexed annuities is due to several factors, according to Todd Giesing, assistant research director, LIMRA Secure Retirement Research. For one, market volatility has led some investors to seek out the relative safety of fixed products rather than variable products, he said.

Although performance is limited to the upside in indexed annuities, due to features such as caps and participation rates, there's a floor to the downside that protects assets in the event of poorly performing markets.

Distribution channels that have traditionally shunned indexed annuities in favor of variable products — namely, banks and independent broker-dealers — have been warming to such products over the last few years, according to Mr. Giesing.

The bank channel saw a 30% increase in indexed annuity distribution in 2015 when compared to the year prior, and independent broker-dealers saw a 6% increase over the same time period, according to LIMRA data.

Indexed vs. variable annuity sales ($ billions)
Source: LIMRA Secure Retirement Institute U.S. Individual Annuity Sales Survey

The boon is also due to more insurers pushing products in the indexed arena as opposed to just the variable annuity market.

“We've seen some companies who've traditionally been strong in the variable annuity market who are putting more focus on the indexed annuity space,” Mr. Giesing said. “It's not just one or two of the top companies driving this growth.”

At the same time that indexed annuity sales have swelled, sales on the variable side of the house have deflated, with sales falling in 2015 for a fourth consecutive year to $133 billion. That's a 5% drop from $140.1 billion in 2014.

Last quarter, VAs also posted their lowest quarterly sales total since the first quarter of 2009, at $31.7 billion.

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