Variable annuity sales up 25% from this time a year ago

Rising interest rates and slowing stock market drive assets to insurance products, Limra report says

Nov 26, 2018 @ 2:53 pm

By Ryan W. Neal

Third quarter sales of variable annuities were up 25% year-over-year to $25 billion, according to a Limra Secure Retirement Institute report. It's the second consecutive quarter of growth after a stretch of sales declines that stretched back to 2014.

In the first nine months of 2018, VA sales were $75.4 billion, up 4%, compared with the same period in 2017.

The increase inVA sales are representative of the annuity market in general. Total annuity sales reached $58.8 billion the third quarter of 2018, 25% more than the same period last year according to Limra. The products have brought in $170 billion through the first nine months of 2018, 11% more than those months of 2017.

As for the VA increase, Limra director of annuity research Todd Giesing credited an increase in registered indexed-linked annuity sales, which were nearly $3 billion in the third quarter.

"Greater volatility in equity markets and better pricing due to rising interest rates are attracting consumers looking for a blend of growth and downside protection," Mr. Giesing said in a statement.

(More: Fixed annuities are on a tear)

Fixed indexed annuity sales are growing particularly well. Sales of that product hit $18 billion in the fird quarter, 2% more than the previous quarter and 28% better than the year-ago period, Limra reported.

Fixed indexed annuities have brought in $50.1 billion so far in 2018, a 22% improvement over the first three quarters of 2017. Limra forecasts total 2018 sales to reach $70 billion, which would exceed expectations and break annual sales records.

Mr. Giesing credited rising interest rates as being the primary driver of accelerated growth in variable and fixed annuities.

In particular, the 10-year Treasury rate increased nearly 60 basis points over the past year and ended the third quarter above the 3% mark, he said.

"This really helps from a product standpoint — the manufacturers of these products can provide better value, better guarantees," Mr. Giesing said. "In the indexed annuity markets, the majority of growth was driven by products that offered guaranteed living benefits."

A slowing stock market is also contributing to strong sales of fixed indexed annuities, said Jamie Hopkins, director of the Retirement Income Center at The American College. With stock markets providing lower returns in the face of rising interest rates, money will naturally move away from pure equity investments and towards life insurance.

"The reality is that annuities are still vastly underutilized in retirement income planning and not over-utilized," Mr. Hopkins said in an email. "We have focused on the sales component but research has shown the value of mixing in a floor of income along with investment assets to help with longevity."

(More: 3 reasons for the annuity sales spike)

The demise of the Department of Labor's fiduciary rule has renewed interest in annuities, Mr. Hopkins said.

"Some of the uncertainty is gone" from the insurance market following the vacation of the rule, but Mr. Giesing said he believes the economic environment is the "key driving factor" of increase annuity sales.

A similar rule from the Securities and Exchange Commission wouldn't have a significant impact on sales the way it's currently written, but Mr. Giesing acknowledged that the rule is likely to change over the next year.

Limra anticipates slower growth in 2019 and 2020, driven primarily by a downturn in equity markets. "This will have a negative impact on certain product categories, particularly variable annuities," Mr. Giesing said.

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