Fixed Indexed Annuities Replacing Traditional Variable Annuities

It’s not your parents annuity marketplace anymore, according to Linda Koco of Insurance News Net. In her article, “FIAs Give Traditional VAs A Jolt,” she summarized recent annuity data from Cerulli Associates about the state of the annuity market. The most notable research found that fixed indexed annuities are giving traditional variable annuity products a run for their money. This is because of the living benefit features offered by indexed annuities. The compound annual growth rate for fixed indexed annuities from 2007-2014 was 9.7%. Products with guaranteed living withdrawal benefits (GLWBs) led this rate of growth with their benefit base roll-ups up to 9% and withdrawal rates that were higher than those of variable annuities. During the same time frame, variable annuity sales went in the other direction. Sales were highest in 2007 and then took a dive after the financial crisis in 2008-2009. Many variable annuity carriers stopped offering living benefits in the years following the crisis, which pretty much cut out VA growth.

Variable annuity sales went down more than 3% from 2013-2014. Overall annuity sales grew in that time frame, mostly because of the significant growth in fixed indexed annuity sales. This sales increase is based largely on the availability of living benefits and bonuses with these FIAs. Current investors are still looking for these income options because there are not many choices out there when it comes to creating income for retirement. This means that it’s likely that fixed indexed annuity products will continue their sales increase into the future. Cerulli Associates also expects significant growth in some other annuity products over the next six years. This includes deferred income annuities (DIA), immediate income annuities and investment-only variable annuities (IOVA). They also expect traditional variable annuities and traditional fixed annuities to decline in sales over the same time period. The move away from living benefits will continue to hurt VA sales and FA sales won’t likely recover until interest and crediting rates rise.

Insurance News Net says that this research makes sense based on the product development and sales trends that they have seen. Deferred income annuities didn’t start becoming really popular until 2013 or 2014 and now there are 15 carriers selling them. Sales grew 22% from 2013 to 2014 to a record growth figure of $2.7 billion. The Qualifying Longevity Annuity Contract (QLAC) is a specialized version of the DIA that is becoming more prevalent as well. The government made it easier to use QLACs in retirement plans a year ago and there are already 10 different carriers selling them.

Immediate income annuities are certainly not new, but they have had a recent resurgence because of their use in retirement income planning. More Americans are tasked with creating their own income stream in retirement, so immediate income annuities are bringing more value than ever before. Sales increased 17% from 2013 to 2014. Advisor searches for immediate income annuities went up 24% from the second quarter of this year to the third. Advisors, older consumers and even the financial media will be the driving forces to an increase in immediate income annuity sales.

Investment-only variable annuities are increasing in popularity as more and more insurance carriers stop offering lifetime income guarantees with their variable annuity products. They offer many different subaccounts and alternative investment options. They cost less because they don’t offer the guarantees that the current variable annuity products do, but they are not new products. There was a a time in the past where you would never be able to find a variable annuity that offered living benefit guarantees, something that might be the case in the future as well. Current IOVAs are selling more now that the variable annuities with living benefits are hard to come by.

Fixed indexed annuities might be replacing the variable annuities with living benefits that consumers have come to know and love. As companies stop selling VAs with living benefits, look for fixed indexed annuity sales to continue their steady increase. In addition to FIAs; deferred income annuities, immediate income annuities and investment-only variable annuities are poised to get an increasing market share over the next 5-10 years as well. Move over traditional variable annuities: fixed indexed annuities are trying to take your place in the market.

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