Record sales in fixed annuities driven by equity volatility and rising interest rates yielded the highest quarterly revenue for issuers in nearly a decade. The conditions of the past few years have also altered the mix of variable products shaping the annuity space.
Fixed-rate deferred and fixed-index products helped boost total annuity sales by 22% year-over-year in the fourth quarter to $62.1 billion — the most revenue since the first quarter of 2009,
“It's not uncommon that, when we see volatility spike, we see fixed [annuities] spike as well,” says Todd Giesing, LIMRA’s director of annuity research.
Fixed annuity sales for the year of $132 billion and fixed-index sales of $69.6 billion set records, with FIAs beating their last annual revenue peak by $10 billion. FIA sales soared by 40% year-over-year in the fourth quarter to $19.5 billion, a
Indeed, in a reflection of investors’ desire for peace of mind, some of the traditional characteristics of the fixed world have become relatively popular in variables as well. Structured or buffered products designed to combine upside with downside protection amounted to some $11 billion and more than 10% of variable sales in 2018, LIMRA says. Only three years ago, they constituted
With issuers
“We had our best year ever,” Powell said last month, expressing a goal of hitting $1.3 billion for 2019 and eventually “ramping things up” to $2.5 billion or more. “We’re going to be very strategic in working with advisors who believe in guaranteed income and who believe in annuities.”
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LIMRA now predicts VA purchases to increase for the first time in six years while fixed contracts reach unprecedented levels.
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Revenue from FIAs surged to well over the existing mark in the second quarter, while VAs stabilized after 17 straight quarterly declines.
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The industry research organization LIMRA sees reasons for optimism despite flat overall sales figures in the first quarter.
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The largest firms’ combined VA and FA revenues hit a three-year low in 2017, but the products still make up a significant portion of their businesses.
The bank and credit union-focused issuer’s structured Zone and Horizon products carry around 150 to 175 basis points in expenses while allowing clients to choose from an array of floors in potential losses and ceiling levels in gains. More than 40 BDs offer the products through selling agreements.
Madison, Wisconsin-based CUNA Mutual reached selling deals with Cetera Financial Group in September 2017 and LPL Financial in May 2018, according to Powell. The planning and risk control allowed by the commissionable products display how they were “built for the fiduciary rule,” he says.
The now-vacated rule has altered the space. Fixed revenue in 2018 of $132 billion rose to nearly the 2015 level of variable sales, and VA revenue of $100.1 billion came in at roughly where fixed sales had been that year. The modest 2% uptick in VA sales marked their first increase
Commission-free FIAs and VAs
“It's not that they’re new per se, but at the same time they haven't had a lot of exposure because only a few carriers offered them,” he says, noting banks and independent broker-dealers as key distributors. “They definitely do have their place in the market.”