Fixed indexed annuity sales in the second quarter were the highest on record, according to Limra, as low interest rates continue to push investors away from more traditional fixed-income investment options.
Fixed indexed annuities posted $16.2 billion in sales through June 30, which is 30% higher than the same period last year and bests the previous quarterly record of $16.1 billion set in the fourth quarter of 2015, Limra data show. Fixed indexed annuities attained their highest-ever annual sales total last year.
According to data from Wink Inc., another tracker of fixed indexed annuities, the second quarter represented fixed indexed annuities' second-best quarter of all time with $15.51 billion in sales. (Wink data show the fourth quarter of 2015 as No. 1.)
Elevated sales during the quarter were likely due to several factors, including persistently low interest rates and demographic trends playing out, as baby boomers continue retiring at a rapid clip and seek out more conservative investments and guaranteed income, said Scott Stolz, senior vice president of Private Client Group investment products at Raymond James & Associates Inc.
“It's almost like in August last year, clients concluded that interest rates aren't going up anytime soon — and by that I mean for years — and are reaching for any sort of guaranteed return they can get,” Mr. Stolz said, referencing the bout of market volatility that occurred in the latter half of the summer of 2015.
Bank certificates of deposit are the primary products against which fixed indexed annuities compete, according to Sheryl Moore, president and CEO of Moore Market Intelligence. With CDs offering an average return of less than 1%, investors are attracted by the possibility of earning around 3.5% or 4.5% on a fixed indexed annuity, depending on the insurer, index and crediting method used, as well as the principal protection FIAs offer, Ms. Moore said.
Despite the high quarterly sales of fixed indexed annuities, the forecast isn't all rosy for the products. Earlier this month, Limra forecast a drop of approximately 30% to 35% in indexed annuity sales next year as a Labor Department regulation governing investment-advice standards in retirement accounts comes into effect.
Traditional fixed annuities also showed strong quarterly sales figures. Fixed immediate annuity sales of $2.5 billion in the second quarter were 14% greater than the same period in 2015. Further, deferred income annuity sales of $870 million were the highest quarterly total since Limra started reporting on this product in 2011.
“We've seen more companies putting focus and emphasis on these products over the past few quarters,” said Todd Giesing, assistant research director at the Limra Secure Retirement Institute. “The growth isn't just coming from one or two of the top players.”
As variable annuity sales have been on a consistent decline the last several years, some companies may be de-emphasizing variable annuities and more strongly promoting other lifetime-income-producing product lines, Mr. Giesing said.
This sales dynamic is a bit of an anomaly — it's the first time Mr. Stolz remembers fixed annuity sales rising as interest rates have fallen. Sales typically move in line with 10-year Treasuries, he explained.
As of Aug. 15, 10-year Treasuries were returning 1.55%, compared with 2.24% at the beginning of the year.
As is the case with indexed annuities, returns on fixed annuities are “better than anything you could get at the bank right now,” Ms. Moore said.
“Given where those rates on fixed annuities are today, we should we selling virtually none,” Mr. Stolz said. “But it's all relative.”