VA sales up, fixed annuities down: LIMRA report

Investors favored variable annuities during the first quarter, with many seeking higher returns amid an extremely low interest-rate environment, according to a report today from Limra’s Secure Retirement Institute.

Total VA sales hit $26.5 billion, up 16% from the $22.8 billion sold during the first quarter of 2019, the report shows. Meanwhile, fixed-annuity sales languished, falling 22% quarter-over-quarter, at $29.5 billion, compared with $38 billion a year prior.

But given the recent volatility, the rest of the year could have very different results, said Todd Giesing, annuity research director at the Secure Retirement Institute.

With VAs, there is usually a lag between changes in market conditions and sales, Giesing said. Sales during the first quarter of 2019 were low, given the market activity in late 2018, he said.

With the stock market down overall this year and fluctuating wildly, investors could be less likely to buy most VAs, and product makers will all but certainly tamp down on levels of guarantees on living benefits that were previously available. However, a subset of VAs — structured annuities, also known as buffered annuities or registered index-linked annuities — is poised to do very well, Giesing said. In the first quarter, sales of those annuities were up 44% from a year prior, at $5.1 billion, versus $3.5 billion, according to the report.

Those products, which have been on the market since about 2010, he said, generally have higher ceilings on returns than indexed annuities, though they also have the potential for losses, which are limited with a floor.

“This is an interesting period,” he said. “We haven’t seen a period of sustained market stress that RILAs have gone through, so we have nothing to compare to.”

But because the products have buffers against losses and the potential for more upside than fixed annuities and bank products, they will likely sell very well for the rest of the year, he said.

Total annuity sales during the first quarter were $56 billion, compared with about $60 billion during the first quarter of 2019, according to the report.

As with the 2008 recession, fixed annuities will probably see sales improve for the rest of the year, though the current interest rates mean the products will not see as much of a bump as they did a decade ago, Giesing said. Investors are drawn to those products as part of a “flight to safety,” he said.

During January and February, sales of fixed annuities fell, though the start of the year is usually a slow time for sales, he noted. In March, when volatility picked up, sales of fixed-rate deferred and indexed annuities increased more than they normally do during the month, he said. Nonetheless, those lines of annuities will probably not see the level of record sales they did in 2019, he said.

“It’s still early from an impact standpoint,” he said. “If interest rates were at these levels without these [market and COVID-19 pandemic] events occurring, we would expect sales to be dropping off pretty rapidly.”