After reviewing the final 2015 sales results, fixed indexed annuities had a record year and seem to be continuing their path to eventually overtake variable annuity products as the top selling annuities. Investment News’ Greg Iacurci discussed the importance of last year in “Fixed indexed annuities continue their surge with record sales year.” Fourth quarter indexed annuity sales of $16.1 billion were the highest ever, besting the previous quarter’s record setting $14.3 billion. After those two quarters it’s no surprise that 2015 was the best year ever for fixed indexed annuity sales. Sales went up 13% from $48.2 billion in 2014 to $54.5 billion in 2015. Back in 2007, indexed annuity sales were less than half of what they were last year. It certainly makes sense that sales records are being set after sales increased every quarter during the past two years. These sales results came from LIMRA Secure Retirement Institute’s sales surveys.
There are many reasons for the increasing popularity of fixed indexed annuities. A lot of these same factors have contributed to the recent declines in variable annuity sales as well. Consistent market volatility has turned a lot of people away from riskier variable products and towards safer fixed products like indexed annuities. Indexed annuities offer market upside participation with a floor to protect your assets in the case that markets go down. Keep in mind that there are participation rates and caps that limit full market participation with indexed annuity products, something that is a trade-off in order to receive the downside protection.
In addition to volatile markets helping indexed annuity sales, more distribution channels are offering these products than ever before. Bank channels had a 30% increase in indexed annuity distribution and independent broker-dealers had a 6% increase over the past year. These two channels traditionally favored variable annuities over fixed indexed annuity products.
Insurance companies are having a big effect on increasing fixed indexed annuity sales as well. Many companies are strengthening their focus on indexed annuity products rather than sticking to variable annuities. These factors are not only contributing to increasing fixed indexed annuity sales, but to decreasing variable annuity sales as well. The fourth quarter of 2015 was the lowest sales quarter for variable annuities since 2009. Variable annuity sales were $31.7 billion in the fourth quarter and $133 billion for the entire year 2015. That figure is 5% lower than 2014’s sales of $140.1 billion. That was the fourth year in a row that variable annuity sales decreased.
Three factors contributing to the increase in fixed indexed annuity sales are volatile markets, increasing distribution channel participation, and more focus from insurance companies. These factors are also contributing to lower variable annuity sales.
Written by Rachel Summit