Annuities forecast climbs as FIAs rebound from fiduciary slump

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After a sales slump across all types of annuities last year, the insurance products are poised for a greater rebound in 2018 after a jolt from new purchases of fixed-index annuities.

The LIMRA Secure Retirement Institute has revised its predicted growth in total sales for the year to between 5% and 10%, up from a forecast of 0% to 5% in October. The industry research organization released the new estimate on May 22.

Total sales of all types of annuities ticked down by $200 million year-over-year to $51.8 billion, but David Lau, whose firm DPL Financial Partners is a distributor to the fee-only channel, sees RIAs as a major growth channel for new fixed-index annuity offerings.

Lau agrees with LIMRA’s updated projections, noting that he expects strong returns both this year and next year since FIAs are only starting to gain traction and sales are “generally a slow build” in the RIA space. “We definitely see RIAs finding great appeal with these products,” he said.

Partial implementation of the Department of Labor rule last June had pushed down new contracts to a 16-year low as issuers changed their products and operations to comply with the regulation and many advisors balked at pitching them to clients. For example, FIA sales fell last year for the first time since 2009, LIMRA says.

In contrast, sales of FIA jumped 11% year-over-year to $14.5 billion in the first quarter, and they increased sequentially in the first period of the year for the first time in eight years. All told, FIAs saw the second highest ever first-quarter sales ever tracked by LIMRA for the products.

Todd Giesing, the LIMRA Institute’s director of annuity research, cited a court decision vacating the fiduciary rule in March and “the expectation for positive economic factors” as key reasons for revising the predicted sales upward. LIMRA also boosted its forecasts in the overall fixed and variable channels.

Seasonal factors usually lead to sequential declines in the first quarter for FIA sales, rather than the notable 4% increase in the first quarter, Giesing notes.

“This uptick in sales is a combination of an improved outlook on the regulatory front, as well as rising interest rates creating the opportunity for more attractive rates,” Giesing said in a statement.

Top index funds over the past 10 years
The average annualized return of the top 20 funds has been nearly 15%.

New commission-free FIAs from major issuers like Allianz, Pacific Life and Great American are gaining traction among RIAs, according to Lau, whose firm already has about 60 member RIAs after launching earlier this year. The new FIAs provide a reasonably-priced substitute for fixed-income products, he says.

“These FIAs give them similar risk characteristics and a way of de-risking portfolios while having the potential for better returns,” Lau says.

Nationwide, which took in the third highest sales of any issuer of FIAs at $1.2 billion, produced record overall sales for the first quarter, according to Eric Henderson, senior vice president of the firm’s annuity and life insurance businesses.

“Similar to the industry, Nationwide’s growth categories continue to be our fixed-indexed and fee-based product offerings,” Henderson said in an email. “Strong sales in our fixed-indexed annuities, both Summit and the New Heights suite, have propelled sales to more than 18% above prior-year levels.”

LIMRA also reported impressive returns among fee-based variable products. Sales of fee-based variable annuities soared 70% year-over-year to $780 million, with plenty of room for further growth since they only represent about 3% of all VA sales.

VA sales have fallen for 17 straight quarters, but purchases of structured VAs, another recent growth area among VA products, rose 4% to $2.2 billion. LIMRA renamed its classification of the products to “registered indexed-linked annuities” in order to avoid confusion with other types of VAs.

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Annuities Fixed annuities Variable annuities Insurance RIAs Fee-based compensation Fiduciary Rule David Lau LIMRA Nationwide