US annuity sales in 2017 decreased by eight percent, to US$203.5bn, compared with 2016, according to Limra Secure Retirement Institute's Fourth Quarter 2017 US Individual Annuity Sales Survey. After six consecutive quarters of decline, the fourth quarter results were flat, at $50.8bn. Despite the fall in sales, there was a nine percent rebound from the 16-year low in the third quarter of 2017.
"The implementation of the [Department of Labor (DoL)] fiduciary rule in 2017 had a significant impact on the individual annuity market," said Todd Giesing (pictured), director, annuity research, Limra Secure Retirement Institute. "The impact to independent retirement account annuity sales was much more pronounced than non-qualified annuity sales"
The DoL rule was the main reason for the decline in sales, according to Giesing. "Sales in Q3 dipped off significantly as the DoL fiduciary rule was implemented and the changes trickled down the distribution outlets," said Giesing. "The scope of the regulation and the vagueness of some of the provisions meant that some of these provisions were subject to interpretation which resulted in product manufacturers and distributors having to update their processes and align them with the new rules."
The good news is that sales volumes in the fourth quarter rebounded. "We are cautiously optimistic, but we're a long way from the levels seen two years ago," said Giesing. "Structured annuity sales leveled off in the fourth quarter, but were up 10% compared to fourth quarter 2016. For the year, structured annuity sales were up 25% to $9.2bn compared to 2016... Structured annuity sales saw impressive growth through independent broker dealers in 2017."
US variable annuity sales were $24.7bn in the fourth quarter, down two percent compared with prior year results. Total variable annuity sales for 2017 were $95.6bn - nine percent lower than in 2016 - marking the first time in almost 20 years that annual variable annuity sales have fallen below $100bn.
Fourth quarter indexed annuity sales totaled $14.7bn, a seven percent rebound from the prior quarter and a five percent increase, compared with the fourth quarter of 2016. For the year, fixed annuity sales fell five percent to $57.6bn, compared with prior year. This is the first year since 2009 in which annual indexed annuity sales have declined.
The main reason for the slowdown is the regulatory uncertainty, which is expected to continue in 2018. "There is now more clarity and this will translate at least in firms coming back to the market," said Giesing. "However, there is potential for the DoL rule to be modified and there are rumours about the [Securities and Exchange Commission] coming out with its own 'fiduciary rule', which would overlap with what the DoL is doing; and individual states are also proposing their own rules, which could create a whole unique layer of uncertainty for the industry."
Despite the slowdown in sales, manufacturers and distributors continue to be active because demand from investors approaching retirement for indexed annuities has increased, according to Giesing. "Product providers are still seeking opportunities and, although product development has slowed down, we have seen pockets of product development from providers seeking to tap into opportunities," he said.
Giesing expects the new wave of structured annuities or index-link variable annuities to gain momentum this year. "We have also seen some firms being a bit experimental, such as Prudential and Nationwide, with new products." Prudential entered the indexed annuities market in mid-February with a choice of underlyings while Nationwide launched into the fee-based fixed indexed annuity market with an annuity offering exposure to the JP Morgan Mozaic Fixed Income Index.
He also noted that, between 2015 and 2016, the number of annuity products linked to risk or volatility control indices increased and now represents 25% of fixed index annuities. "The shift in activity was more noticeable in 2015, when we saw new products being launched, but this part of the market seems to be established and we see this kind of products being offered from time to time," said Giesing. "The main reason for the appeal of FIAs linked to volatility control indices is the interest rates environment which is pushing a search for yield from investors across products and channels. Although a fixed index annuity linked to the S&P 500 can deliver more yield than fixed-income products, volatility indexes provide a new layer of opportunity to deliver more value in a product that still provides principal protection."
Limra also reported that total fixed annuity sales increased in the fourth quarter, up two percent to $26.1bn. For the year, fixed annuity sales fell eight percent, to $107.9bn. Despite this decline, annual fixed annuity sales surpassed $100bn for the third consecutive year, for the first time, according to Limra.
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