Have variable annuities sales hit rock bottom?

After six years of declines, sales could improve slightly if rising interest rates help insurers more easily support their guarantees

Mar 31, 2018 @ 6:00 am

By Greg Iacurci

Sales of variable annuities are in the tank.

Product sales have slid for the past six consecutive years, and 2017 sales (roughly $96 billion) were the lowest in two decades.​

Will variable annuities recover from the slump, or has their heyday come and gone?

Some analysts seem to think product sales have bottomed out, at least for now.

"When you talk about all the change over the last five years, it's definitely been a dynamic market," said Todd Giesing, director of annuity research at the LIMRA Secure Retirement Institute. "But I'm struggling to see where the industry itself is asking for a life jacket."

To a certain extent, insurance companies have limited the supply of variable annuities — especially ones offering guaranteed income — as they try to more carefully control consumer risk in the wake of the financial crisis.

But the vast majority of insurers also revised products in ways that made them less attractive, such as adding volatility-control mechanisms and limiting investment choice, in an effort to ease market risk.

FIDUCIARY FUTURE

The Labor Department's fiduciary rule, which raises investment-advice standards in retirement accounts, reduced product sales further, especially those sold in IRAs. The rule made it more difficult to sell products on commission to retirement savers and diverted some of the industry's attention away from product sales and marketing efforts, observers say.

With uncertainty surrounding the future of the DOL rule — after the 5th U.S. Circuit Court of Appeals' decision on March 15 to vacate the rule, and the Trump administration's ongoing review of parts that have not yet been enacted — the regulation's effect on VAs is uncertain.

LIMRA estimates VA sales will be flat to slightly down in 2018 because of continued regulatory uncertainty, market volatility (which typically hurts VA sales) and careful management of risk by insurers, Mr. Giesing said.​

However, sales could improve marginally if rising interest rates help insurers more easily support their guarantees, he said.

Buffer annuities — also known as "structured" or "variable-indexed" annuities — have emerged as a bright spot in an otherwise lackluster VA market. They're a cross between indexed and variable annuities, allowing a consumer to share some of the market risk with an insurance company. Sales of these products exceeded $9 billion last year, up from roughly $2 billion in 2014. Over that period, buffer annuity sales as a percentage of overall variable-annuity sales increased to 10% from 2%.

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