Fixed annuity sales set for massive spike

Rising interest rates primarily responsible for estimated 50% spike in sales of fixed-rate deferred annuities through 2019, says insurance industry group Limra

Jun 7, 2018 @ 2:37 pm

By Greg Iacurci

Fixed-rate deferred annuities are poised for a huge jump in sales over the next two years, as rising interest rates and a potentially faltering equity market push consumer money into the products at near-record levels, according to Limra, an insurance industry group.

Limra, which tracks annuity data, projects fixed-rate deferred annuity sales will increase 15%-20% year-over-year in 2018, and an additional 20%-25% next year.

That estimate would put annual sales north of $50 billion by 2019, which is nearly 50% greater than the $34 billion last year but still shy of the record — more than $60 billion, which occurred during the financial crisis as investors flocked to more conservative investment products.

Todd Giesing, the director of annuity research at Limra, attributes the expected spike primarily to a continued rise in interest rates.

The yield on the benchmark 10-year Treasury note topped 3% in late April for the first time since 2014. (It's since dipped slightly since mid-May, to around 2.95%.)

Rising bond yields bode well for insurance companies, which use fixed-income instruments in their general accounts to underpin annuity products. Higher yields means insurers can offer a higher guaranteed interest rate in products like fixed-rate deferred annuities, which lock up investor assets for multi-year periods at a given rate.

(More:10 IBDs with the most variable annuity revenue)

Moody's Investors Services, the economic data that Limra uses in its analyses, also previews an equity market downturn in 2019 — which would likely push investor money from equities to fixed annuity products if it occurs.

"It's been a while since we've had a down market, so we could see a lot of people try to lock in their gains and protect principal," Mr. Giesing said.

Limra's forecast for fixed-rate deferred annuities piggybacks on a generally improving environment for all annuity products, particularly due to regulatory rollbacks in addition to rising interest rates.

"We've taken away the big headwind from the regulatory pressures of the DOL fiduciary rule," Mr. Giesing said.

The Department of Labor's fiduciary regulation, which sought to eliminate conflicts of interest in retirement accounts like IRAs, was seen a big reason for declining sales in annuities last year, especially for variable and indexed annuity products. The 5th Circuit Court of Appeals struck down the rule in March, and the court is soon expected to officially take the rule off the books.

Limra expects all annuity sales to increase 5% to10% year-over-year in 2018, and up to 5% next year.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

InvestmentNews celebrates diversity & inclusion in the financial advice business

Highlights of the Excellence in D&I Awards, showcasing the achievements of 26 individuals and firms that are moving the needle when it comes to diversity and inclusion.

Latest news & opinion

7 things advisers should do today to boost diversity and inclusion

Creating diversity and inclusion within financial advice firms is challenging, but these InvestmentNews Excellence in Diversity & Inclusion award winners have suggestions that firms can put into practice today

The midterm elections: What's at stake for financial advisers

A shift in control of the House could change the course of important issues, including the SEC advice rule, tax reform and retirement policies.

What to tell your clients after they've won the lottery

The current combined Mega Millions and Powerball jackpots are more than $850 million. What should you tell your clients if they have a winning ticket?

2019 Medicare premiums announced

Slight increase in Part B premium to $135.50 per month is in line with expectations.

7 ways states got tough with unregistered individuals and firms in 2017

Rise in digital currency frauds helped trigger a crackdown by state regulators.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print