BISA Magazine - Quarter 3, 2017 - 23

Wherefore Annuities?
"The individual annuity market (i.e., variable and fixed annuities) will see single digit
declines over the next two years," forecasts
LIMRA the Windsor, Connecticut-based
insurance research organization.
LIMRA projects all annuities (fixed and variable) will be down 5-10 percent in 2017
(from $222.1 billion in 2016) as the DOL
fiduciary rule takes hold. However, the rule will
not be fully implemented until Jan. 1, 2018,
and it's still unknown if the full rule will remain
intact. Meanwhile, the DOL rule is having
a big impact on quarterly annuity industry
numbers, both fixed and variable, says Todd
Giesing, the research organization's director
of annuities.
LIMRA projects all annuity sales will be flat to
down 5 percent in 2018. Variable annuities
(VAs) are expected to decline more than fixed
annuities (FAs):
*

Variable annuity forecast for 2018:
down 10-15 percent;

Fixed annuity forecast for 2018:
down 0-5 percent.

Looking at indexed annuities, a subcategory of
fixed annuities, LIMRA forecasts 2017 sales
will decline 5-10 percent from the $60.9
billion sold in 2016 (again, industrywide, not
just in banks). In addition, 2018 may see
another 15-20 percent drop, according to the
research organization.
"Banks have some uniqueness compared
with other channels," Giesing tells BISA Magazine. For one, banks continue to focus more
on selling accumulation products as opposed
to income products, favored by retirees.
For example, with indexed annuities, most
policy holders (55 percent) overall opt for a
guaranteed living benefit rider, but in the bank

channel, only 13 percent of customers select a
guaranteed living benefit, says Giesing.
The simple accumulation products that banks
favor, like fixed-rate deferred annuities (once
known widely as SPDAs), may be easier to sell
in the DOL-fiduciary-rule world, however, suggests Giesing.
Elsewhere, the first quarter of 2017 saw a huge
jump (industrywide) in annuity sales compared
with the previous quarter. Fixed-rate deferred
annuities were up 50 percent from Q4 2016,
with sales of $10.1 billion; fixed indexed annuities (FIAs), the largest subcategory, gained 25
percent with $13.6 billion in Q1 2017 sales.

How to account for the big jump? Interest rates
began to rise in the fourth quarter of 2016,
explains Giesing. The 10-year treasury rate, a
benchmark for fixed annuities, rose to an annual
high mark of 2.6 percent, and investors flocked
to fixed annuities in the first quarter of 2017.
Also, many surrender-charge schedules expired
in the first quarter, and those policyholders were
free to buy new annuities without incurring the
charge. (First quarter 2009 was a big time for
annuity sales; policies sold at that time with an
eight-year surrender-charge schedule expired in
Q1 2017, Giesing said.)
But that sales burst is unlikely to improve yearend numbers in 2017 and 2018 greatly.

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BISA Magazine

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