Fixed-index annuity sales hit a record amid industry turnaround

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Fixed-index annuities are driving a turnaround in industrywide sales of the insurance products, thanks to the demise of the fiduciary rule and rising interest rates.

FIA sales hit a record in the second quarter, jumping 17% year-over-year to $17.6 billion and topping the prior record from the fourth quarter of 2015 by 12%, according to the LIMRA Secure Retirement Institute. The research organization released quarterly sales data from 62 issuers on Aug. 21.

Annuity sales dropped 8% last year to $203.5 billion, with revenue tumbling in the second and third quarters to the lowest levels since the collapse of the dot-com bubble. The partial implementation of the fiduciary rule last June had prompted major changes in the types of products and their distribution.

With the rule vacated by a federal appeals court decision in March, sales have stabilized in the long-falling variable annuity category and increased by double digits in fixed products. The higher interest rates set by the Fed also allow clients to lock in higher rates on their FIA contracts.

Growth in sales of FIAs boosted each of the top 10 issuers’ revenue by 10% or more over the first quarter, according to Todd Giesing, director of annuity research at LIMRA.

“Clearly, with the Department of Labor’s fiduciary rule vacated and the prospect of continued rising interest rates, demand for this product is high,” Giesing said in a statement.

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The largest firms’ combined VA and FA revenues hit a three-year low in 2017, but the products still make up a significant portion of their businesses.

Wink, a market research firm which also reports quarterly sales metrics, tracked a 20% upsurge year-over-year in sales of all non-variable products. Annuity issuers and distributors are ready “to get back in business,” Wink CEO Sheryl Moore said in a statement.

“The recent increases in rates, coupled with the regulatory reprieve, will result in a confluence of sales momentum to close out 2018 with record sales levels,” Moore said.

Sales of all types of annuities rose 10% year-over-year in the second quarter to $59.5 billion, according to LIMRA. Revenue from variable contracts ticked up 2% after 17 straight quarters of declines to $25.8 billion, while fixed-product revenue jumped 18% to $33.7 billion, LIMRA’s report shows.

Jackson National Life Insurance ($9.1 billion), AIG Companies ($8.2 billion), New York Life ($7.4 billion), Lincoln Financial Group ($5.7 billion) and TIAA ($5.3 billion) generated the most revenue in the first half of the year. Allianz Life of North America, the perennial leader in FIAs, sold $3.8 billion of the products.

Fee-based products make up a rapidly expanding but small share of the market, with fee-based FIA sales of $67 million in the quarter representing less than one-half of 1% of total revenue from FIA contracts. Sales of commission-free VAs soared by 49% year-over-year to $850 million, or 3.3% of all VA purchases.

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Annuities Fixed annuities Variable annuities LIMRA Wink