Fixed-index annuities break record (again) as interest rates boost sales

Rising interest rates have pushed up sales of fixed-index annuities to record levels for the second straight quarter, while driving a 25% gain in the total volume for all products over the previous year.

FIA sales jumped by 38% year-over-year to $18 billion in the third quarter, as combined purchases among all annuity products for the year-to-date grew by 11% to $170 billion, according to the LIMRA Secure Retirement Institute. A fiduciary rule-related slump brought down total sales 8% in 2017.

Compliance guidelines which only partially went into place last year before a federal appeals court ruling vacated the rule in March had sidelined issuers and distributors while they made major changes. LIMRA, an industry research organization, adjusted its sales projections upward this year after the rule’s demise.

These days, the questions surrounding the products focus on the extent of expansion in fee-only annuities and the legal ramifications of issuer Ohio National’s decision to cut off annuity commission trails in some variable products. Independent broker-dealers and an advisor have sued the firm.

Sales of fee-based variable annuities surged by 43% year-over-year to $800 million for the quarter, despite “operational hurdles” at IBDs and RIAs around separate performance reporting and billing procedures for the products, says Todd Giesing, LIMRA’s annuity research director.

The organization now predicts VA sales to go up in 2018 for the first time in six years. Purchases of fixed contracts could reach $130 billion in 2018, LIMRA says, noting it would be the first time in more than four decades tracking annuities that fixed sales topped $100 billion for four straight years.

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Higher interest rates are aiding FIAs, fixed-rate deferred and registered index-linked products, also known as structured VAs, as contract writers boost guaranteed lifetime withdrawal rates in their riders and offer more favorable price points, Giesing says. “It really does allow the manufacturer some flexibility in the value proposition that they can provide,” he adds.

Following the 25% rise over the year-ago period to $58.8 billion, total sales will top $230 billion in 2018 and surpass LIMRA’s optimistic projections, the organization says. FIA sales will likely top their record again in the fourth quarter, according to Giesing, who expects annual FIA sales of around $70 billion.

Among writers, Jackson National Life Insurance ($13.4 billion), AIG Companies ($13.0 billion), New York Life ($11.1 billion) and Lincoln Financial Group ($8.8 billion) have produced the most revenue this year. Perennial FIA leader Allianz Life of North America rounds out the top five issuers with $8.3 billion in sales.

BDs, RIAs and third-party platforms are working to make the fee-only products better fit into their systems, Giesing says. In a well-attended session at NAPFA’s fall conference, advisors expressed interest in the increasingly available offerings, mixed with specific concerns about topics like the billing process.

Five years ago, the “conversation would have been very different,” with advisors questioning the “entire premise” of the products, NAPFA CEO Geoffrey Brown said in an interview at the conference. “Advisors are digging down, and that suggests to me that there’s been an evolution of thought in terms of the appropriateness of the products.”