Indexed annuities are set to overtake variable annuities in sales within the next three years, according to Cerulli Associates, continuing an ascent over the past several years that has steadily eroded variable annuities' market share.
Variable annuity sales of $95.6 billion in 2017 were down 48% from their high in 2007, according to Limra, an insurance industry group. Product sales have declined for six consecutive years. Last year was the first time in two decades sales had been below $100 billion.
Meanwhile, indexed annuities have surged in growth. While sales of $57.6 billion last year were still $38 billion shy of their variable counterpart's, they're up 230% over the past decade, and Limra expects product sales to be at an all-time high this year.
Cerulli, a consulting firm, estimates sales of indexed annuities will eclipse those of variable annuities by the end of 2021.
Indexed annuities currently have a 28% share of the annual annuity sales market, according to Limra data. Cerulli expects this share to swell to 40% in five years.
The marketing pitch of indexed annuities — upside potential with downside protection — seems to have resonated with investors and their advisers since the 2008 financial crisis. More insurers, including big variable annuity providers, have begun offering the product. Product design also has become more palatable to advisers and has evolved to a point where certain features such as income riders can compete well with VAs, according to experts.
Advisers also have soured on the design of some variable annuity products. Most providers, moving to reduce their risk exposure, have limited the investment options or added volatility controls.