Annuity sales hit record in 2019 thanks to new breed of VA

Variable annuities had their best sales year since 2008 last year, powered by enormous growth in the sales of registered indexed-linked annuities, or RILAs.

Sales of those products, which have caps on investment returns and losses, were up 55% from 2018, according to a report Tuesday from Limra’s Secure Retirement Institute.

Last year also set a record for overall U.S. annuity sales, at $241.7 billion, up 3% from $233.7 billion in 2018, according to the report.

That increase reflects strong sales during the first part of the year for fixed annuities and a distinct bump in variable annuities during the second half, said Todd Giesing, director of annuity research at the Secure Retirement Institute. That 2019 sales volume will be difficult to match in 2020, he said, particularly with the Securities and Exchange Commission’s Regulation Best Interest going into effect in June, which could lead to a small amount of “turbulence” as insurers adjust their products and processes.

“It was quite an interesting year,” Mr. Giesing said. “We had a great start to the year in 2019, particularly on the fixed annuity side of the business.”

Fixed annuity sales hit $139.8 billion during 2019, a 5% increase from 2018, according to the Secure Retirement Institute. Fixed indexed annuities notched a record $73.5 billion in sales, up 6% from 2018.

Demand for fixed annuities at the start of 2019 was driven by the stock market's drop in late 2018, Mr. Giesing said. However, low interest rates and stronger market returns shifted demand from fixed annuities to VAs. In particular, demand shifted from fixed indexed annuities to RILAs, he said.

Working in RILAs’ favor is the fact that they have a higher cap on potential returns than FIAs, Mr. Giesing said.

Sales of RILAs, which are relatively new products, helped push VAs to their second consecutive year of increased sales. Since the financial crisis, VA sales have generally fallen, in part because of lower guaranteed benefits that carriers offer as riders on the products.

“The economic conditions are more favorable” for RILAs, Mr. Giesing said.

Sales of RILAs totaled $17.4 billion during 2019, which represented more than 7% of all annuity sales last year and 17% of the total $101.9 billion in VA sales.

Insurers have been adding more RILAs, and some are selling them with guaranteed living benefits, he noted. More carriers will likely add the products this year, Mr. Giesing said.

One company, Lincoln Financial Group, launched its RILA, Lincoln Level Advantage, in May 2018.

Since then, the product has sold about $3.7 billion in contracts, including $2.7 billion during 2019. Last year, Lincoln Level Advantage accounted for nearly 20% of all annuity sales at the company and about a third of all its VA sales, said John Kennedy, head of Lincoln’s retirement solutions distribution.

“This is the most successful launch that Lincoln’s ever had,” he said.

Although the product is available with the company’s i4Life guaranteed living benefit rider, that option has accounted for a slim portion of sales, Mr. Kennedy said. “It’s primarily been, for us, an accumulation product.”

The company has made several changes to the product’s features since its launch, he said. On Tuesday, Lincoln added another option for new sales of B shares, which includes 10% downside protection for a three-year term.

Although stock market returns are a draw for VAs, the company’s RILA product has sold well as investors have become leery of the bull market, he said.

“We’ve literally been in an 11-year bull market,” Mr. Kennedy said. “If we see a market correction, not only would this be significant for RILAs, this would be significant for the overall annuity business.”

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