Last week, we wrote about the LIMRA Secure Retirement Institute sales results showing the strength of fixed annuities. Higher fixed annuity sales last year and to start this year came at the expense of variable annuity sales. Investment News’ Greg Iacurci wrote about the decline of the variable annuity in the article “Variable annuity sales drop to lowest level in 15 years: LIMRA.” There were two main contributors to this variable annuity decline, volatile markets and the impending DOL fiduciary rule increasing the requirements to sell variable annuities. Variable annuity sales haven’t been as low as they were during the first quarter of this year since the first quarter of 2001.
Sales were $26.6 billion in the first quarter, a figure that is 18% lower than variable annuity sales during the first quarter of last year. Out of the top 20 variable annuity sellers, 19 of them had sales declines. AXA Equitable was the only company that had increasing variable annuity sales during the first quarter. 2015 was the fourth year in a row that overall variable annuity sales went down. Not only are total variable annuity sales declining, their market share has taken a big hit as well. Variable annuity sales accounted for 45% of total annuity market share during the first quarter. This is the lowest market share these products have had since 1995. Only one year ago, variable annuity products accounted for 60% of total annuity market share.
LIMRA SRI’s assistant research director said that a big reason for the decline was that equity markets were quite volatile in the beginning of this year and took a large dive to end 2015. Consumers avoided equity-based products during the first quarter, something that helped fixed annuity product sales. There was double-digit growth for every different type of fixed annuity product last quarter. Consumers are more interested in conservative products during this market instability. Total fixed annuity sales were $32.3 billion, a 48% increase from the first quarter of 2015 to this year’s first quarter.
The second major reason for the decline in variable annuity sales was the impending DOL fiduciary rule. The rule was finalized in April and requires variable annuity products to meet best interest contract exemption(BICE) guidelines. This rule adds more compliance requirements and the risk of increased litigation to people who sell variable annuity products. LIMRA is forecasting significant sales declines in both 2016 and 2017 for variable annuity products. The DOL fiduciary rule will take effect next year. Most people did not expect fixed indexed annuities to be included in the BICE requirements. The sales increases for fixed indexed annuities during the quarter also took away from variable annuity products. Now that indexed annuity products were included in the rule, LIMRA is forecasting declining sales for these annuities as well for the first time in 8 years.
Variable annuity sales are hitting record lows because of market volatility and the DOL fiduciary rule’s BICE requirements. LIMRA expects sales to continue their decline over the next couple of years. There are still some people holding out hope that the DOL fiduciary rule will be overturned, as shown by the numerous lawsuits that have been filed against it. As of now though, the rule is set to go into effect in 2017.
Written by Rachel Summit