Indexed annuity sales fell 13% to US$13.6bn during the first quarter of 2017 with seven of the top 10 indexed annuity providers reporting declined sales in the first quarter, according to LIMRA Secure Retirement Institute's First Quarter 2017 US Retail Annuity Sales Survey.
According to the report, sales of indexed annuities with guaranteed living benefits (GLB's) dropped off significantly in the first quarter, to the point where more indexed annuity sales were without a GLB than with one. Much of this decline can be attributed to a drop in sales by the top two carriers, according to Todd Giesing (pictured), assistant research director, LIMRA Secure Retirement Institute.
'While we typically see a seasonal decline in the first quarter, we suspect there are some companies re-evaluating their product mix in anticipation of the DOL (Department of Labor) rule,' said Giesing. 'Unless there is a change in the DOL fiduciary rule rollout, we are anticipating indexed sales in 2017 to decline for the first time in a decade.'
The Institute is forecasting indexed annuity sales will drop 5-10% in 2017 and another 15-20% in 2018 when the Best Interest Contract Exemption (BICE) goes into effect. BICE is a proposed class exemption that, if granted, would allow insurance intermediaries known as independent marketing organisations (IMO) as well as insurance agents they contract with, to continue selling indexed annuities on commission in retirement account such as individual retirement accounts (IRAs).
Overall, US annuity sales were US$52bn, a slight uptick from Q4 2016, but a 12% decline from the first quarter 2016, according to LIMRA. This is the fourth consecutive quarter of decline in overall annuity sales.
'Despite an improvement in the equities market and interest rate environment, uncertainty around the DOL rule overwhelmed any impact it may have had on annuity sales,' said Giesing.
In the first quarter, variable annuity (VA) sales totaled US$24.4bn, down 8%. There has only been one quarter of growth when compared to prior years since 2012.
'While we believe the DOL is playing a significant role in the declining VA sales, this downward sales trend began before the DOL announced their rule,' said Giesing. 'Sales with a guaranteed living benefit (GLB) continued to decline at a much faster rate than products without. In fact, where we are seeing growth is in the structured VA market. In the first quarter, structured settlements grew 60 percent compared to first quarter 2016. This segment represents about 5-10% of the total VA market.'
Limra is forecasting VA sales will drop a further 10-15% in 2017 totaling less than $100bn, which hasn't happened since 1998.
In the first quarter, sales of fixed annuities fell 15% to US$27.6bn. All fixed product lines sales experienced declines. Sales of fixed-rate deferred annuities, (Book Value and MVA) fell 16% in Q1 2017 to US$10.1bn.
'Despite the decline in first quarter fixed annuity sales, this is the fifth consecutive quarter fixed sales outperformed variable sales,' said Giesing. 'The last time this happened was nearly 25 years ago.'
Overall Limra forecasts fixed-rate deferred products to grow as much as 5% in 2017, and closer to 15-20% in 2018.
Income annuities had a tough quarter despite steady interest rates, as flexibility features in deferred annuities are trumping the higher payouts typically seen in income annuities first quarter single premium immediate annuity (SPIA) sales were US$2bn, down 20% when compared to the same quarter last year. Deferred income annuity (DIA) sales also fell by 26% in the first quarter, to US$545m. Limra projects income annuity sales to drop 5-10% in 2017, but rebound 10-15% in 2018.
In addition, the trade body expects overall sales in 2017 to fall below US$200bn, about a 5-10% decline, which will be the lowest annuity sales have been since 2001.
The structured VAs segment in the US is dominated by the three major insurers in the country including MetLife (distributor of Shield Level Selector), Allianz Life (Index Advantage), and Axa (Structured Capital Strategies). Other sellers include Fidelity, Voya Financial, Lincoln Financial, CUNA Mutual and Pacific Life, among others.
US Labor Secretary Alexander Acosta confirmed on Monday (May 22) that the DOL fiduciary rule will become applicable on June 9. The rule's implementation was delayed for 60 days - from April 10 until June 9 - following a directive from President Donald Trump.
SRP will be launching its Inaugural Americas Indexed Insurance Forum 2017 on September, 15-17, 2017 at the Renaissance Savery Hotel in Des Moines, Iowa. For more information contact SRP's head of Americas, Joe Burris. joe@structuredretailproducts.com
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