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Annuities forecast brightens with fiduciary rule’s demise

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After six consecutive quarters of declines in total annuity sales, the insurance products are on track to post gains for 2018, according to a three-year forecast published by the LIMRA Secure Retirement Institute.

Improved economic conditions and elimination of the Department of Labor’s fiduciary rule, could boost annuity sales by 5% to 10% in 2018, LIMRA forecasts. The industry organization also predicts sales could gain another 5% in 2019, before leveling off in 2020.

A decline in annuity sales

Click on the categories to see the sales estimates (in $B).

Source: LIMRA Secure Retirement Institute, U.S. Individual Annuities survey

A separate report, which is based on data from Beacon Research and Morningstar and issued by the Insured Retirement Institute, shows sales of all types of annuities totaled $50.5 billion in the first quarter. That marks a 1.2% increase from the prior quarter but a 0.6% decrease from sales of $50.8 billion a year earlier.

“It’s encouraging to see annuity sales on the rise, despite recent regulatory challenges causing marketplace disruption,” Cathy Weatherford, IRI president, said in a statement.

Fixed indexed sales come roaring back

Click on the categories to see the sales by quarter (in $M).

Source: Beacon Research Fixed Annuity Premium Study and Morningstar

Beacon Research found that fixed-annuity sales totaled $27.6 billion in the first quarter, marking a 6.7% increase over the fourth quarter and a 0.8% increase year-over-year.

Meanwhile, sales of fixed-index annuities increased 4.6% in the first quarter, when compared to the previous quarter. “We are seeing both increased demand for principal-guarantee fixed-indexed products, and a rapidly developing market for structured annuities, where downside risk is shared by the consumer and insurer,” Jeremy Alexander, CEO of Beacon Research, said in a statement. “We expect this market to continue to gain strength.”

Variable annuity sales, on the other hand, were $22.9 billion in the first quarter of 2018, according to Morningstar. That marks a 4.2% decrease from the previous quarter, and a 1.7% decline year-over-year.

“Variable annuities continue to face challenges regaining their footing in the wake of transaction-processing disruptions born of the past few years’ efforts to comply with the now vacated DOL fiduciary rule, coupled with increased market volatility and negative net flows putting pressure on asset values,” John McCarthy, senior product manager at Morningstar, said in a statement. “However, we expect sales to recover as business processes normalize and sales increase in newer product types, such as structured and fee-based annuities.”

While annual variable annuity sales have declined over the last six years, LIMRA has revised its projections, stating that it expects sales to increase by as much as 5% in 2018 due to short-term improving economic conditions, product innovation and cancellation of the fiduciary rule. That said, the growth is expected to be choppy: LIMRA also expects variable annuity sales to fall as deep as 5% in 2019, before growing another 5% in 2020.

The results back up the new 2018 Trends in Investing survey conducted by the Financial Planning Association, the Journal of Financial Planning and the FPA Research and Practice Institute, which found only 28% and 26% of the planners surveyed currently recommend variable and fixed annuity products, respectively, to their clients.

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