Fixed indexed annuity sales gaining on VAs: Cerulli

Fixed indexed annuity sales gaining on VAs: Cerulli
Fixed indexed annuity sales are steadily gaining on those of variable annuities, thanks in large part to continued low interest rates.
NOV 06, 2015
Fixed indexed annuity sales are steadily gaining on those of variable annuities, thanks in large part to continued low interest rates. “We do see fixed indexed sales growing faster than traditional variable annuity sales,” said Bing Waldert, a director at Boston-based research firm Cerulli Associates. Although VA sales are almost triple those of fixed indexed annuity sales, the gap has narrowed over the past several years. According to Cerulli's ninth annual "Annuities and Insurance" report, total flows to VA products were $138 billion in 2014, an 11.5% drop from $156 billion in 2011. Fixed indexed annuities, on the other hand, saw $48 billion in flows in 2014, a surge of 45.5% from $33 billion in 2011. Flows to fixed indexed annuities grew every year from 2011 to 2014 time span, while flows to VAs declined each year over that same span. SECOND-BEST QUARTER Wirehouses and independent broker-dealers propelled fixed indexed annuities to their second-best sales quarter of all time in the second quarter of 2015, when the annuity products notched $12.6 billion in total sales. Variable annuities had $35.6 billion in total sales in the second quarter, according to IRI. “We're projecting [fixed indexed annuities] will continue to eat away at VA sales, especially traditional VAs that are sold with living benefits and guarantees,” Mr. Waldert said. Low interest rates are causing some advisers to turn to fixed indexed annuities to generate retirement income for their clients. Traditional fixed-income instruments, whether individual bonds or bond mutual funds, currently offer income lower than traditional levels due to low rates; at the same time, VA products have come under pressure due to low rates, and products offered today in some cases aren't as “rich” or “attractive” as they were around four to five years ago, Mr. Waldert said. GUARANTEED RETURN Fixed indexed annuities, which are pegged to a specific index such as the S&P 500, provide a guaranteed minimum rate of return as well as the possibility for contract growth in strong markets, up to a certain maximum rate of return. Insurance executives speaking at the Insured Retirement Institute's annual conference in September also cited interest rates as a contributing factor to growth in fixed indexed annuities. Investors are seeking certainty in an uncertain interest rate environment, they said, making a locked-in minimum contract return desirable. “People want predictability,” said John Kennedy, head of retirement solutions distribution for Lincoln Financial Distributors. Fixed indexed annuities have also started adopting some of the guarantees investors would have in a typical VA, such as living benefits, making them more attractive to advisers building retirement income portfolios, Mr. Waldert added. Projected strong fixed indexed annuities sales growth in the foreseeable future hinges in part on interest rates remaining low, insurers not making product design more complex, and channels such as independent B-Ds that haven't traditionally used fixed indexed annuities continuing to look at such products, Mr. Waldert said.

Latest News

Advisor moves: LPL, Raymond James land advisors with $590M in combined assets
Advisor moves: LPL, Raymond James land advisors with $590M in combined assets

Advisors previously with UBS, Edward Jones head for new firms.

Retirement: 401(k) balances rebound as participant engagement holds firm
Retirement: 401(k) balances rebound as participant engagement holds firm

Principal Financial Group’s Teresa Hassara shares data showing account balances rising and Roth adoption accelerating.

Independent contractor formerly associated with MML Investors Services charged with running Ponzi
Independent contractor formerly associated with MML Investors Services charged with running Ponzi

Trevor Uhls was charged with wire fraud and money laundering in a criminal complaint filed in U.S. District Court for the Western District of Missouri.

Osaic adds $367M multigenerational team from Ameriprise in Iowa
Osaic adds $367M multigenerational team from Ameriprise in Iowa

The multigenerational Cedar Rapids firm is joining through a key OSJ as recruiting competition heats up across the wealth space.

IRS floats eligible investment rules for Trump Accounts
IRS floats eligible investment rules for Trump Accounts

New Treasury guidance sets fee caps, defines index-tracking rules, and bars ESG-linked funds from the tax-deferred accounts for minors

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income