Investors ditch FIAs for Rilas as Q2 sales tumble  

According to the Secure Retirement Institute (SRI) LIMRA, total FIA sales fell by 40% to US$12 billion, the lowest recorded figure since the first quarter of 2015. During the first half of the year, FIA sales declined by 26% to value US$28.2 billion.

The fall in FIA sales drove an overall decline in total fixed annuity sales which stand at US$27.8 billion, a 27% drop from the prior year. Year-to-date, total annuity sales total US$57.6 billion representing a 24% decrease from H1 19.

Variable annuity (VA) sales also decreased by 19% to US$20.8 billion, the lowest recorded value since 1996. During H1 20, total VA sales stood at US$46.8 billion representing a 4% decrease from 2019.

There’s a proven demonstration of an appetite for [Rilas] with a different risk profile from traditional annuities

Rilas were the only annuity products that boasted growth with an 8% climb from Q2 19 totalling US$4.5 billion. Sales grew by 22% to US$9.4 billion in the first half of the year.

Rilas are a cross between a fixed indexed annuity and a variable annuity - they differ from FIAs in that investors accept a level of risk of market loss in exchange for higher upside potential.

Rilas function differently in that investors have to be able to tolerate the risk of loss while income annuities are less sensitive to short-term interest rate fluctuations, according to head of annuity research at Cannex Financial Exchanges Tamiko Toland (pictured).

“This is because they’re a long-term product and leverage mortality credits,” she said. “The insurer calculates payments for the lifetime of the annuitant and adjusts that amount based on the expectation that some people will die sooner than others. This makes the payments for all of them higher.”

Rilas have become popular among retirement investors with a risk tolerance seeking complimentary products for people to invest in.

“Advisors would consider this class of annuity as one that is fundamentally variable more growth potential and risk,” said Toland. “There’s a proven demonstration of an appetite for this product with a different risk profile from traditional annuities.”

In terms of distribution, bank sales of Rilas suffered in the second quarter, dropping by 15% while independent and full-service national broker dealers’ sales grew by 7% each and account for more than half of total sales for the quarter.

This shift can be attributed to the general conservatism of banks, though big broker-dealers generally behave differently with there being the possibility of an internal pullback, according to Toland. 

“I think that the way that these banks did business during the pandemic may have affected them more than some other outlets while there were glaring distribution challenges at the forefront,” she said.

The shift towards Rilas has seen several providers updating their offering with Nationwide partnering with Annexus, to launch the Nationwide Defined Protection Annuity (DPA), the carrier's first offering in the Rila category.

Nationwide DPA provides three defined protection levels which limit negative performance allowing investors to select how much of their investment—90%, 95% or 100%—will be protected from market losses and helps determine their performance opportunities.

DPA also features different index strategies including traditional equity indices like the S&P 500 Price Index and MSCI EAFE index, as well as the NYSE Zebra Edge Index and JP Morgan Mozaic II Index - two indices designed to provide consistent performance through market cycles.