Annuity sales topped $60B for another quarter. But is the party now over?
Annuity sales may have finally reached their peak, after three straight quarters topping $60 billion.
The products sold at a level unseen in more than a decade, but lower interest rates will push down volumes the rest of the year in some types of annuities, according to the LIMRA Secure Retirement Institute. Fixed-rate deferred annuities in particular will fall with the lower rates.
Fixed contracts of $38.1 billion and fixed-index annuities of $20 billion set records in the second quarter, the industry research organization says. Two of the top 10 issuers also received private letter rulings from the IRS they say will enable RIAs to offer more fee-only products to clients.
Rising rates and equity volatility have been fueling sales of the products, which had been in a slump until a federal court decision in March 2018 vacated the fiduciary rule. Sales of fixed-rate deferred products went up by 10% to $13.1 billion in the second quarter from the same period a year ago.
“While we didn’t see significant impact on the fixed-rate deferred annuity market during the second quarter, there is usually a lag between interest rates drops and sales declines,” LIMRA Annuity Research Director Todd Giesing said in a statement. “We anticipate sales to substantially drop in the third and fourth quarters.”
On the other hand, total sales across the fixed and variable product shelf increased by 7% year-over-year in the second quarter to $63.9 billion — their highest level since the first quarter of 2009. First-half sales of $124.8 billion rose 11% over the year-ago period as well.
Quarterly variable sales stayed flat with their 2018 levels, but they also snapped two straight quarters of lower volumes. Buffered or structured VAs — referred to by LIMRA as registered indexed-linked annuities — jumped 66% year-over-year to $4.1 billion in the second quarter.
LIMRA tracks data from 62 companies that it says constitutes 95% of the industry, while the research firm Wink releases preliminary data from its survey covering 97% of sales. FIA volumes surged by 14% year-over-year and outpaced their previous record by 3%, Wink says.
“It is a great time to be offering annuities with growth based on an outside benchmark,” Wink CEO Sheryl Moore said in a statement. Structured products and VAs also reeled in nearly 20% higher sales in the quarter, she notes.
The strong first half of the year may help soften the blow of lower rates. LIMRA predicts that FIA sales will still reach a record $70 billion by the end of 2019. However, VAs usually sell at their highest levels in the second quarter, and the lower rates will likely hurt VA sales, LIMRA says.
Sales of fee-based VAs also tumbled by 15% year-over-year to $725 million. But fee-based FIAs took in $193 million — an expansion of 188% from the year-ago period. The commission-free products represent small but fast-growing parts of the industry as more RIAs offer the products.
Earlier this month, Lincoln Financial Group and Nationwide said they received word from the IRS that clients can deduct advisory fees of up to 1.5% of the cash value of a fee-only, non-qualified annuity contract without it counting as a taxable distribution.
“This ruling serves to harmonize the treatment of advisory-fee withdrawals across both qualified and non-qualified annuities,” Tad Fifer, Lincoln’s head of RIA distribution, said in a statement. He added the IRS decision will “make it easier for investment advisors to incorporate non-qualified annuity solutions as part of their planning strategies.”
Craig Hawley, the head of Nationwide Advisory Solutions, also praised the ruling while noting that the firm “has always been” one of only a handful of issuers enabling advisors to be paid automatically out of the clients’ contracts.
“Nationwide has been committed to achieving this favorable ruling on behalf of RIAs, fee-based advisors and their clients, and now can provide them with an important benefit that they have been seeking for years,” Hawley said in a statement.
The carrier’s total sales so far in 2019 of $5.1 billion make it 10th overall in LIMRA’s sales survey, while Lincoln’s volume of $7.3 billion make it the No. 3 firm. AIG ($10.2 billion), Jackson National Life Insurance ($8.6 billion), New York Life Insurance ($7.2 billion) and Allianz Life of North America ($5.9 billion) round out the other members of the top five sellers in the first half.