Annuity Sales Reach Record Highs

Annuities are rising in popularity, according to reports issued by at least three research organizations in recent weeks.

An analysis by industry trade group Insured Retirement Institute says sales of fixed annuities and variable annuity assets reached record highs for the third quarter of 2018.

IRI president and CEO Cathy Weatherford said, “We expect fourth quarter sales to remain strong and continue into 2019. Variable annuities also should rebound as Americans perceive a greater need for solutions to protect their investable assets and retirement income from market volatility.”

According to the IRI report, there were nearly $55 billion worth of annuity sales throughout the industry in the third quarter of 2018, which was 20 percent higher than the third quarter of the previous year. The third-quarter 2018 total was 2 percent lower than the second quarter of 2018.

Total Annual Sales Increased

As of Dec. 12, total annuity sales for the year were $159.3 billion, which represented a 7.1 percent increase over the same time last year when there were $148.8 billion in sales.

Fixed annuity sales in the third quarter of this year increased by nearly 41 percent over 2017’s third-quarter total of $22.6 billion in sales.

Variable annuity sales also saw an increase, rising from $20.9 billion in the third quarter of 2017 to $23 billion in the third quarter of 2018.

The IRI results track a report issued in November by LIMRA Secure Retirement Institute, which said third quarter fixed indexed annuities sales had smashed a record for the second quarter in a row. That report also found sharply increased sales for variable annuities. LIMRA is a worldwide research, learning and development organization that provides analysis on retirement solutions, insurance and distribution.

According to the LIMRA report: “Fixed annuity sales drove most of this quarter’s growth. Fixed annuity sales have outperformed variable annuity sales in nine of the last 11 quarters.”

Todd Giesing, annuity research director at LIMRA SRI, stated in a press release, “The entire annuity market benefited from strong growth in interest rates.”

He went on to explain that higher interest rates allow companies to increase their guaranteed lifetime withdrawals rates, which makes fixed indexed annuities a good option for people who want to ensure that they have an income stream in retirement.

U.S. Individual Annuity Sales 3rd Quarter Year to Date (Dollars in Thousands)

Rank Company Total Sales Variable Fixed
1 Jackson National Life $13,352,643 $12,815,189 (not provided)
2 AIG Companies $13,032,111 $5,213,500 $7,818,612
3 New York Life $11,109,546 $2,231,900 $8,877,646
4 Lincoln Financial Group $8,849,136 $6,578,369 $2,270,767
5 Allianz Life of North America $8,269,644 $1,733,096 $6,536,549
Source: LIMRA Secure Retirement Institute

Predicted Annuity Growth in Coming Years

And yet another report predicted fixed indexed annuities and structured annuities will see improved sales growth over the next few years. This report was prepared by Cerulli Associates, a global research and consulting firm.

Donnie Ethier, director at Cerulli, said in a news release, “Indexed and structured annuities will likely fuel overall annuity industry sales growth over the coming years, although a rebound to the record years of 2007 and 2008 is unlikely to come any time soon.

One major factor that most experts cite as driving annuity sales is the demise of the so-called fiduciary rule from the U.S. Department of Labor. The rule never actually went into effect, but its impending implementation was thought to have caused confusion in the market, dampening sales. The 1,023-page rule would have required financial advisors to put the interests of their clients first.

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Labor Rule Complexity Hindered Prior Sales

After the Trump administration refused to defend the Obama-era rule in court, the Fifth Circuit Court of Appeals in New Orleans ordered it to be vacated. Part of the appellate court’s reason for striking the rule was its “arbitrary and capricious treatment of variable and fixed indexed annuities.”

The court said that the rule “directly disadvantages the market for fixed indexed annuities in comparison with competing annuity products.”

The court held that anticipation of the rule had created confusion about how to comply with the new standards. It said the regulation was “burdensome” and exposed brokers and insurance agents to “heightened lawsuit exposure.”

According to Cerulli, the pending fiduciary rule caused a decline in total annuity industry sales in 2017. Cerulli said that the fact that the new rule was delayed and then repealed fueled a sales recovery, specifically for fixed indexed and variable annuities.

Volatile Stock Market, Interest Rates Contribute to Annuity Growth

But the end of the fiduciary rule is just one factor cited in the spike in annuity sales. Volatility in the stock market and higher interest rates are also combining to make annuities attractive for investors.

Annuities shield retirement account from the shocks of stock market downturns, while increased interest rates lead to higher returns in new annuity contracts.

Another LIMRA SRI report found that younger consumers who are still working are most likely to be interested in annuities.

According to LIMRA, earlier research showed that retirees who own an annuity feel more confident than who do not that they can afford their preferred retirement lifestyles, even if they live to age 90 or older.

8 Cited Research Articles

  1. Cerulli Associates. (2018, December). Index-Linked Annuity Product Sales Offer Renewed Growth to Insurance Companies. Retrieved from https://cerulli.com/about-us/press/
  2. Insured Retirement Institute. (2018, December 12). IRI Issues Third-Quarter 2018 Annuity Sales Report. Retrieved from https://www.myirionline.org/newsroom/newsroom-detail-view/iri-issues-third-quarter-2018-annuity-sales-report
  3. Insured Retirement Institute. (2018, December 12). IRI Issues Third-Quarter Annuity Sales Report – Charts. Retrieved from https://www.myirionline.org/docs/default-source/news-releases/pr_3q_sales_report_charts_1212183479288ddd656b1e95b1ff000007faf7.pdf?sfvrsn=2
  4. Investopedia. (2018, October 16). The DOL Fiduciary Rule Explained. Retrieved from https://www.investopedia.com/updates/dol-fiduciary-rule/
  5. LIMRA. (2018, November 20). LIMRA Secure Retirement Institute Finds Younger Working Consumers Open to Annuities. Retrieved from https://www.limra.com/Posts/PR/Industry_Trends_Blog/LIMRA_Secure_Retirement_Institute_Finds_Younger_Working_Consumers_Open_to_Annuities.aspx
  6. LIMRA. (2018, November 26). LIMRA Secure Retirement Institute: Third Quarter Fixed Indexed Annuities Smash Sales Record for Second Consecutive Quarter. Retrieved from https://www.limra.com/Posts/PR/News_Releases/LIMRA_Secure_Retirement_Institute__Third_Quarter_Fixed_Indexed_Annuities_Smash_Sales_Record_for_Second_Consecutive_Quarter.aspx
  7. Retirement Income Journal. (2018, December 13). FIA sales will exceed VA sales by end of 2021: Cerulli. Retrieved from https://retirementincomejournal.com/article/fia-sales-will-exceed-va-sales-by-end-of-2021-cerulli/
  8. United States Fifth Circuit Court of Appeals. (2018, March 15). Chamber of Commerce of the United States of America, et al. vs. United States Department of Labor, et al. Opinion. Retrieved from http://www.ca5.uscourts.gov/opinions/pub/17/17-10238-CV0.pdf