Annuity sales plummet to 15-year low

Annuity sales fell to their lowest level in a decade-and-a-half in the third quarter amid a slump linked to the partial implementation of the fiduciary rule.

Combined revenue from fixed and variable products slipped 13% year-over-year to $46.8 billion, according to the LIMRA Secure Retirement Institute. Variable annuities suffered their 15th drop in a row in the third quarter while hitting their lowest level in 20 years, the industry research organization says.

The declines followed the worst first half of the year for annuity sales since 2001. Issuers remain optimistic about the appeal of fee-only advisory products and the enduring necessity of retirement income. The part of the rule that went into effect June 9 has hurt sales, though, according to LIMRA.

The enforcement provisions of the rule remain in flux. But the rule obliges retirement advisors to examine the fees and commissions of products like annuities more closely while providing greater transparency to clients and more documentation for regulators.

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LIMRA is “confident” that the initial implementation of the rule “had a negative effect on sales, particularly on IRA contracts,” Todd Giesing, its director of annuity research, said in a statement. “This has been a challenging year for the individual annuity market, but we expect the environment to improve in 2018.”

LIMRA has revised its sales estimates for next year upwards due to the delay and study of the rule by President Trump’s administration. Fee-based variable product revenue jumped more than 50% year-over-year to $560 million, and sales of structured variable products grew 15% to $1.7 billion.

The two products represent only a little more than 10% of the overall variable market, however, and both saw slight sequential reductions in the third quarter. LIMRA predicts variable annuity sales to drop by 10% to 15% this year and to shrink below $100 billion for the first time since 1998.

Fixed sales outpaced variable sales for the seventh straight quarter for the longest such streak in almost 25 years. On the other hand, fixed sales also contracted by 10% year-over-year to $25 billion and fixed index revenue ebbed 9% to $13.7 billion.

Total sales have now declined six quarters in a row, according to LIMRA, which forecasts revenue for the year to reach around $200 billion after the fourth quarter. Total annual sales have not fallen below $220 billion for at least the past decade.